how going concern value works
the difference between the going concern value of a company and its liquidation value is known as goodwill goodwill consists of intangible assets such as company brand names trademarks patents and customer loyalty typically the going concern value will be greater than the liquidation value when a company is acquired the purchase price is typically based on its going concern value this means that a company being acquired can charge a pricing premium that is higher than the value of its assets and takes into account the value of its future profitability intangible assets and goodwill going concern value vs liquidation valuethe going concern value of a company is typically much higher than its liquidation value because it includes intangible assets and customer loyalty as well as any potential for future returns the liquidation value of a company will even be lower than the value of the company s tangible assets because the company may have to sell off its tangible assets at a discount often a deep discount in order to liquidate them before ceasing operations examples of tangible assets that might be sold at a loss include equipment unsold inventory real estate vehicles patents and other intellectual property ip furniture and fixtures liquidating a going concern company can result in a bad reputation for the investors usually liquidation value is applied when investors feel a company no longer has value as a going concern and they want to know how much they can get by selling off the company s tangible assets and such of its intangible assets as can be sold such as ip a company or investor that is acquiring a company may compare that company s going concern value to its liquidation value in order to decide whether it s financially worthwhile to continue operating the company or whether it is more profitable to liquidate it however liquidating a company means laying off all of its employees and if the company is viable this can have negative ramifications not only for the laid off workers but also for the investor who made the decision to liquidate a healthy company liquidating a going concern can give an investor a bad reputation among potential future takeover targets example of going concern valuefor example suppose that the liquidation value of widget corp is 10 million this sum represents the current value of inventory buildings and other tangible assets that can be sold assuming that the company is completely liquidated however widget corp s going concern value could very well be 60 million as the company s reputation of being the world s leading widget producer and its ownership of patents and associated rights for widget production mean that the company should have a large and steady stream of future cash flows 