Liquidation value is the display of the price of business

The liquidation value is the price for which any object is sold on the market at certain times. It is always below market value.

Also, the liquidation value is an indicator that arises when there are some extraordinary circumstances that affect changes in the usual market situation (for example, when the enterprise is bankrupt).

Factors affecting the liquidation value:

- economic situation in the market;

- the direct dependence of the cost of liquidation on the term of sale of the entity, known as the term of exposure. It depends on the type of real estate, the initial cost of sales and the level of demand;

- the level of the entity's attractiveness in the market, which is determined by specific characteristics. It depends on the demand for this or that type of objects.

The liquidation value is determined in such cases:

- before the enterprise there is a threat of bankruptcy;

- an assessment of the activity of a business entity showed an excess of the liquidation value of the company before the one that will be in the process of carrying out activities.

Methods for assessing the cost of liquidating an entity

1. A direct method involves calculating the liquidation value using a comparative approach (direct comparison with similar enterprises and the method of correlation and regression analysis).

2. Indirect methodology that assumes the calculation of value through market valuation. In this case, the liquidation value is the market price minus the value of the forced sale factor of the enterprise. It is in determining the magnitude of this factor and is the main difficulty. Therefore, basically, in the domestic market, the cost of forced sales is determined expertly.

Liquidation value in crisis conditions

In the event of the slightest instability in the economy of the state, the factors beginning to influence the price of economic entities, the main of which is the restriction in the terms of implementation. Therefore, the liquidation value is an indicator that is quite relevant in a crisis situation.

So, if the market situation is characterized by some stability, the so-called "exposure time" can be defined by specialists based on statistical information. In the presence of a complex unstable situation, such a calculation will no longer be characterized by accuracy and reliability. Therefore, it is advisable in this case to use methods of peer review. One should not forget the fact that the accuracy of the assessment of the cost of liquidation depends on the professionalism and experience of the appraiser.

The concept of "liquidation value" can be applied to both the business entity as a whole (business valuation) and its individual components. As an example, we can estimate the cost of liquidation of fixed assets. All methods and factors listed above can be applied to this object.