Liquidation Approach

The liquidation approach is a method used to value a company or asset based on the estimated proceeds that would be received if the company were liquidated. This valuation method assumes that the company's assets are sold off, and the proceeds are used to repay creditors, with any remaining amount distributed to shareholders. The liquidation approach is often used in cases of bankruptcy or financial distress, where the company’s going-concern value is lower than the sum of its parts.

Example

A distressed company’s liquidation value is estimated based on the resale value of its assets, such as real estate, inventory, and equipment, in the event of bankruptcy.