Liquidating Value of Assets

Liquidating Value of Assets

Percentage of Liquidating Value to Book Value
(Normal Range & Rough Average)

Type of Asset

Current assets: cash assets (including securities at market)
Normal Range: 100%
Rough Average: 100%

Current assets: receivables (less usual reserves)*
Normal Range: 75%-90%
Rough Average: 80%

Current assets: inventories (at lower of cost or market)
Normal Range: 50%-75%
Rough Average: 66% (2/3)

Fixed and miscellaneous assets: real estate, buildings, machinery, equipment, nonmarketable investments, intangibles
Normal Range: 1%-50%
Rough Average: 15% (approx.)


*Retail instalment accounts must be valued for liquidation at a lower rate. The range is about 30%-60%; the average, about 50%

Source: Security Analysis (New York: McGraw Hill, 1940), p.579

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Liquidating Value

When looking at the current asset value, we’re getting down to a notion that few investors care to ponder – the liquidating value.

Following the Great Depression the share price of public companies fell so low that many investors bought in just to sell off the companies’ assets and close their operations.

Liquidating a company is not a pleasant prospect, since workers lose their jobs, communities lose their income base, and society in general suffers.

The liquidating value is not only the end of the line; it can be seen as the absolute bottom line. There is no question that the ultimate intrinsic value is revealed when liquidation occurs.

The net current asset value (working capital) per share described by Graham also is a rough index of liquidating value. The liquidating value of a company is never a hard number. It can only be estimated, until a company actually is sold off. This is attributed to a fact we sometimes called Graham and Dodd’s first rule of liquidating value: “The liabilities are real but the value of the assets must be questioned.”

Fortunately, advise Graham and Dodd, it is enough to get a rough idea of the liquidating value for most purposes, accepting the fact that you won’t get, nor will you actually need, an exact figure.

A share price below liquidating value seldom is good news. Temporary conditions – a big stock market drop, a sudden reaction to shocking bad news – may impact a company to that extent. Very quickly, however, the share price should recover. When a stock persistently sells below its liquidating value, it indicates an error in judgment by someone – management, shareholders, or the stock market in general.