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

Orion Steel Ltd's net assets are Rs 120 crore on a going-concern basis. It has stopped operations, and its plant would fetch Rs 70 crore if sold piecemeal after meeting costs of sale; liabilities are already deducted in the Rs 120 crore figure only for book purposes. Which valuation premise is appropriate for assessing what shareholders may realise, and why?

The liquidation premise is appropriate because operations have ceased and the realistic value is what the assets fetch on disposal after costs. Book value assumes continuing operations, which no longer holds, so it overstates what shareholders can realise.

  1. AGoing-concern premise, because the books show Rs 120 crore
  2. BLiquidation premise, because the business has ceased operations and value is realisable through asset saleCorrect
  3. CReplacement premise, because new plant is always dearer
  4. DSynergy premise, because Orion is a steel company

Explanation

Where operations have stopped and the business is not expected to continue, value is better measured on what the assets can realise in disposal. Book value reflects a going-concern assumption that no longer holds. Replacement and synergy premises do not fit a wound-down business.

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