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Definition of 'Going-Concern Value'
The value of a company as an ongoing entity. This value differs from the value of a liquidated company's assets, because an ongoing operation has the ability to continue to earn profit, while a liquidated company does not.
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Investopedia explains 'Going-Concern Value'
This value includes the liquidation value of a company's tangible assets as well as the present value of its intangible assets (such as goodwill). The going-concern value is worked into the purchase price of a company, and is the main reason why the purchase price of a company tends to be higher than the current value of the assets of the company.
For example, 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 steady stream of future cash flows.
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Carefully examine goodwill and its sources before considering the value of your investment.
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Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
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Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
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