Table of Contents7 sections
01 Introduction
Valuing distressed companies presents unique challenges, particularly in determining whether to apply a going concern value or an orderly liquidation value. With the global economy experiencing significant shifts in 2025-2026, understanding when to use each valuation method is crucial for restructuring professionals, investors, and creditors.
02 Understanding Key Concepts
Going Concern Value
The going concern value assumes that a company will continue its operations indefinitely, generating cash flows and profits. This valuation method considers the company's ability to leverage its assets, workforce, and market position to generate future earnings. It is typically calculated using discounted cash flow (DCF) analysis or market multiples such as EV/EBITDA.
Liquidation Value
Liquidation value, on the other hand, assumes the company ceases operations and its assets are sold off. This can be further divided into orderly liquidation value—where assets are sold over a reasonable period to maximize recovery—and forced liquidation value, which occurs under time constraints, often resulting in lower recoveries.
Key Takeaway: The choice between going concern and liquidation value hinges on the company's likelihood to continue operations versus the need to liquidate assets.
03 When to Use Going Concern Value
Going concern valuation is appropriate when there is a reasonable expectation that the company can overcome its financial distress and continue its operations. This scenario often applies to companies with:
- Strong market position or brand recognition
- Viable turnaround plans or restructuring strategies
- Access to additional financing or capital
For example, during the 2025 economic recovery, a mid-sized manufacturing firm facing temporary liquidity issues leveraged its strong brand and customer base to secure additional financing, supporting a going concern valuation approach.
04 When to Use Liquidation Value
Liquidation value becomes relevant when a company is unlikely to survive as a going concern. This is often the case when:
- The company has exhausted its financing options
- There is a lack of viable restructuring plans
- Assets are more valuable individually than as a whole
In a notable 2026 case, a technology startup with valuable patents but unsustainable operations opted for an orderly liquidation, maximizing value recovery for creditors through asset sales.
05 Market Conditions and Valuation Trends
The recent market conditions have significantly influenced the choice between going concern and liquidation value. With interest rates stabilizing and increased investor appetite for distressed assets, companies with potential for turnaround are seeing higher valuations under the going concern premise.
Conversely, sectors facing prolonged downturns, such as traditional retail, have experienced increased liquidation activity. In 2025, the orderly liquidation of several retail chains highlighted the challenges of maintaining operations amidst shifting consumer behaviors.
06 Case Studies and Real-World Implications
Consider a distressed automotive parts supplier in 2025. The company, burdened by debt and declining sales, faced a critical decision: pursue restructuring or liquidate. A detailed analysis revealed potential for a successful turnaround due to emerging electric vehicle contracts, justifying a going concern valuation.
In contrast, a 2026 case involved a distressed real estate developer unable to complete projects due to financial constraints. Here, an orderly liquidation strategy was employed, allowing the sale of land and partially completed projects to recover significant value.
07 Conclusion
Determining whether to apply a going concern or liquidation value requires a thorough analysis of the company's financial health, market position, and restructuring potential. As market dynamics continue to evolve, professionals must remain agile and informed to make strategic valuation decisions.
Tools like iValuate360 play a vital role in facilitating these analyses, providing the data and insights necessary for effective restructuring and valuation strategies.