§ 01
| Asset Category | Typical Recovery (% of Book) | Why Discount |
|---|---|---|
| Cash | 100% | No discount needed |
| Accounts receivable | 70–90% | Some uncollectable, aging issues |
| Inventory | 40–70% | Fire sale pricing, obsolescence |
| PP&E | 30–60% | Specialized equipment, removal costs |
| Intangibles/Goodwill | 0–20% | Often worth little without going concern |
| Real estate | 50–80% | Market-dependent, time to sell |
§ 02
Going-concern value almost always exceeds liquidation value. The difference is the value of the operating business — customer relationships, trained workforce, contracts. This is why Chapter 11 (reorganization) is preferred over Chapter 7 (liquidation).
§ 03
For any company, estimate its liquidation value: take each asset category and apply a distressed recovery rate. Compare to enterprise value — the gap shows how much ‘going concern premium’ the market assigns.
§ 04
A company has $2B in book assets but liquidation analysis shows only $800M in recoveries. Its enterprise value is $3B. What does this tell you?
§ 05
§ 06
In a liquidation scenario, a company's assets are worth $1B book value. In orderly liquidation: $600M. In fire sale: $350M. Your valuation FLOOR?
Five questions · AI feedback
Sit with the ideas.
A distressed retailer has: Cash $50M, Receivables $120M, Inventory $300M, PP&E $200M, Goodwill $400M. Total debt is $500M ($300M secured, $200M unsecured). Applying standard liquidation haircuts (receivables 75%, inventory 50%, PP&E 30%, goodwill 0%), and assuming $30M in wind-down costs, what are the liquidation recoveries?
Why: