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CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

A company with large, stable tangible assets but currently loss-making operations is being valued for a proposed liquidation-oriented restructuring. Which approach is most appropriate to indicate the minimum value realisable by stakeholders?

The asset approach based on realisable values is most suitable. For a loss-making company facing liquidation-type restructuring, earnings-based income and P/E multiple methods are unreliable, whereas realisable asset values indicate the floor value that stakeholders could recover.

  1. AAsset approach based on realisable values of assetsCorrect
  2. BIncome approach using capitalisation of current earnings
  3. CMarket approach using price-earnings multiples of peers
  4. DIncome approach using dividend yield

Explanation

Where earnings are negative and the business is to be wound up or broken up, earnings-based methods give meaningless or negative values. The asset approach using realisable values shows what can be recovered from the assets. P/E multiples and earnings capitalisation both depend on positive earnings.

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