What is ‘Going-Concern Value’
The going-concern value of a company is a value that assumes the company will remain in business indefinitely and continue to be profitable. This differs from the value that would be realized if its assets were liquidated because an ongoing operation has the ability to continue to earn profit, which contributes to its value.
BREAKING DOWN ‘Going-Concern Value’
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.
Example of Going-Concern Value
For 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.