Key takeaways
- Some companies hold assets worth more than their shares
- Liquidation can unlock value hidden by struggling operations
- Debt, taxes and selling costs can erase potential gains
A company worth $1 billion on the stock market might own $2 billion in property, equipment and investments. Yet investors could still value the entire business at less than the assets it holds.
This seemingly irrational situation can occur when a company’s operations are destroying value faster than its underlying assets can generate returns. In extreme cases, shutting the business down and selling everything could theoretically leave shareholders better off than keeping it alive.
The concept is known as liquidation value, and it has played an important role…