liquidation valuations

[claphands22]

Are there any books or resources on understanding liquidations?  Right now I'm basically doing:

 

total liquid assets - (total liabilities + guesstimated cost of liquidation) = liquidation value

 

If you know any resources or some good experience tips I'd appreciate it. I'm currently looking at LENS as a possible liquidation candidate.

 

 

[bookie71]

Back in the dark ages when I went to college, I believe that there was one or two chapters in the Advanced Accounting book on the subject.  Basically you have to put fire sale values on the assets or try to come up with liquidating values as it is no longer a "going concern"

[woodstove]

Be careful about liabilities.  I lost a bundle on Kmart Preferred (the old KM, not KMRT), not knowing what I was doing.

The company had certain assets, had $10b of liabilities on balance sheet, and per my calc there was enough assets

even discounted to cover the liabilities and leave enough for bondholders and preferred.  Monthly balance sheets

were being posted at Edgar as part of the bankruptcy process, so it was not an old-info problem.  But, suddenly,

an extra $74b of claimed liabilities appeared, and that wiped out the preferred and my naive "investment".

 

NNWC (net-net working capital) is a decent guide to floor value for a company which will stay a going concern.

If you want to be more prudent, Ben Graham mentioned using only 80 pct of accts recv and 50 pct of inventory.

But if the going-concern is not the case, then unless you are insider or very experienced, it's easy to lose out.

[Packer16]

In Whitman's book Distress Investing, there is an example of a liquidation value calculation for a firm in bankruptcy on p.201.  It basically adjusts the balance sheet assets and liabilities to FMV from BV. 

 

Packer

[Junto]

A Great Blog and good resource regarding Net-Nets and liquidation analysis is http://greenbackd.com/

 

I highly recommend it.