Going-Concern Value Definition
The going-concern value of a company is defined as the company’s value as an on-going business. It can be contrasted to the value of the business assets if they were sold.
A Little More on What is Going-Concern Value’
Goodwill is the difference between a company’s liquidation value and going-concern value. Goodwill is made up of a intangible assets, such as customer loyalty, trademarks and brand name to mention but a few. All things being equal, the going-concern value will always be greater than the liquidation value because the purchase value of a company is added to the going-concern value of that company.
Some Examples of Going-concern Value
Assume the liquidation value of a Widget corporation is 10 million USD (includes the value of the company’s building, the current value of the company and other important value assuming the company is totally liquidated). The going-concern value of the Widget corporation company could be 60 million USD because the company’s overall value depends on it patent and associated rights, and is ability to make money through future cash flows.
References for Going-Concern Value
Academic Research on Going Concern Value
- · Goodwill and Going-Concern Value: Emerging Factors in the Just Compensation Equation, Oswald, L. J. (1990). BCL Rev., 32, 283. This article examines the role of good will and the calculation of going-concern value. It identifies many of the factors that can or should be present in the value calculation.
- · Going-concern value, market value, and intangible value, Rabianski, J. S. (1996). The Appraisal Journal, 64(2), 183. This article examines the various elements that go into calculating going-concern value, market value, and intangible value. It compares the valuation measures and explains their different purposes.
- · Tax Treatment of Going-Concern Value, Doernberg, R. L., & Hall, T. D. (1983). Geo. Wash. L. Rev., 52, 353. This article examines the tax treatment of going concern value.
- · Going Concern Value: Goodwill by Any Other Name, Wiener, H. M. (1979). Tax Law., 33, 183. This document examines the calculation of going concern value and how it is a proxy for determining company goodwill. It address the tax implications of this calculation.
- · Defining and allocating going-concern value components, Mobley III, T. A. (1997). The Appraisal Journal, 65(4), 323. This article addresses how the allocation of various business components for purposes of collecting going-concern value.
- · Distressed firm valuation: reorganization plan and going-concern capital value, Buttignon, F. (2015). The distressed firm valuation is a very complex subject which adopts mainly corporate finance methods for a very long time. Regardless of the importance of distress firm valuation in the economy, the intended solution has been very few and it only addresses the most important issues with non-practical solutions leading to an economic downturn. The aim of this research is to create a more practical solution to distressed firm valuation by understanding the relationship between the discounted cash flow (DCF) and the various options available as regards pricing models which can help improve the corporate finance problems. Also, this paper explains the pressing concern of the going-concern value on distressed firm and evaluate run an evaluation between them and the firms just coming up from other practical reasons such as bankruptcy and sales of company’s assets. In a strict sense, the marketing of a company’s asset on an individual basis have direct involvement in the management of the firms crisis.
Distressed firm valuation is a very complicated subject that has involved corporate finance literature and practice since a long time. Despite the topics relevance, contributions have been few and confined to stating only critical issues and proposing rather abstract solutions, seldom leading to real-world practices. This paper aims to develop an approach to distressed firm valuation, based on the discounted cash flow (DCF) and option pricing models, which can support corporate finance practice. The focus of the paper is on the going-concern value of the distressed firm to be compared with those arising from other feasible options (including the sale of company assets on an individual basis or bankruptcy value in a strict sense), along the complex process of managing the firm crisis.
- · The value relevance of the qualified going concern opinion, Ruiz-Barbadillo, E., Guiral, A., & Choy, H. L. (2010). This research work explains the extent to which going need affects the market value of a firm. According to this paper, firms which suffer from diverse going concerns has a lower market value compared to firms that have one way worked on the modification of the concerns to meet the required ground. It was also observed that firms with going concerns value suffer from a lower pricing multiple thereby causing their market value to be largely determined by the value of equity. The extent to which the pricing multiples and firm valuation affects the going concern of a firm has a direct incremental impact on the financial level of the firm. Nonetheless, this research does not encourage the valuation of the difference between the expected and unexpected going concern of a firm as well as the going concern option of the intensive-intangible industries and those in other firms.
- · The Theory And Practical Determination Of Going Concern Value, Dimbath, M. F. (1994). Journal of Forensic Economics, 7(2), 171-178. This article examines the theory behind the determination and calculation of going concern value. It addresses the issue of what is goodwill and why this calculation matters.
- · The impact of bankruptcy code on the value of the auditor’s going-concern opinion to investors, Kausar, A., Taffler, R., & Tan, C. (2006). This paper assesses the comparative information of the going-concern option in the capital and auditing market in a similar method but inverse in legal conduct. It is proposed that investors in the United Kingdom (in the creditor-friendly bankruptcy regime) mostly respond negatively to going-concern option for the first time which points to an increment in the risk of total loss associated with the investors in the United State (in the debtor-friendly bankruptcy) all things being equal. With this hypothesis, these results are termed empirical and consistent. According to this paper, it should be noted that the similarities between the international accounting and auditing standard and the method of interaction between the local legal system and as well as their participation in the capital market.
- · Proposed Code Sec. 367 Regs Attempt to Tax Foreign Goodwill and Going Concern Value, Yoder, L. D. (2016). Int’l Tax J, 3. This article addresses the effect of the proposed tax code section and how it would work to tax foreign good will. It also addresses how it would affect going concern value of the company.
- · FMV and Going-Concern Value Compared: An Expert’s Perspective, Shaked, I., & Orelowitz, B. (2014). American Bankruptcy Institute Journal, 33(4), 24. This article compares the calculation of fair market value and going concern value. It does so in the context of valuation for bankruptcy purposes.
- · Depreciability of Going Concern Value, GOODWILL, I. Depreciability of Going Concern Value. This research addresses the depreciation of goodwill (a part of going concern value). This is done for book and tax purposes.
- · Going Concern Value Versus Abandonment Option Value in Debt Restructuring Firms, Aksu, M. H. (2006). This research explains the probability of either the going-concern value or abandoning the option value triumphs in the Troubled Debt Restructuring (TDR) firm in lieu to explaining the relationship between the Troubled Debt Restructuring (TDR) and the observed positive excess return. This research at first hypothesized the extent to which TDR influences the company’s shareholders and fundamental wealth. It also studied the structure and financial ability of the Troubled Debt Restructuring (TDR) firms and their attempts by adopting a method that supports the reaction of the market result and compares these results with the older sample. This result uses a valuation method to explain the book value and power of the firm’s net income. According to this report, the financial status of debtor firms should have increased immediately after the TDR attempt because the assets are lower than the former sample thereby causing an increase in the net income of the restructuring attempt. This research paper encourages the positive effect of wealth and that of going-concern value in the Troubled Debt Restructuring (TDR) firms.