Going-concern value

Going-concern value
See also
Market value added Appraisal right Nonmonetary assets Marketing myopia Total capitalization Classification of assets Economic obsolescence Opening balance Physical asset

Going-concern value is a form of calculating value of the company. The company value can be calculated in many ways, e.g. a liquidation value is the value at which parts of company can be sold if it stop to operate. The going-concern value assumes that the company will continue to operate an be profitable for long period. Therefore, it is higher than liquidation price. The difference is the goodwill of the company.

Goodwill is comprised of trademarks, patents, owned technologies, customer contracts and loyalty, brand names, knowledge, etc. Those elements are sometimes included into assets on balance sheet, but their value is difficult to determine exactly. It depends on technology progress, quality of company products, corporate responsibility, etc. The distinction among the going-concern value of a business and its liquidation worth is known as goodwill. Generally the going-concern worth will be superior than the liquidation worth. When a business is vested, the acquisition value is typically leaned on its going-concern value. When one business buys different, the buyer typically repay again than the value of the purpose company's assets. The value premium results from goodwill, or the value of the company as a going affect. The disparity amongst going involve worth and liquidation worth conspires of imperceptible assets and goodwill. Going concern value is the worth of a business under the establishment that it will proceed to operate for the foreseeable futurity. This is in contrary to liquidation worth, which receives the concern is going out of business.

J.S. Rabianski comments on the definitions defined by the Appraisal Institute which according to the following definition of the continued value. The value of a verified real estate operation. Includes incremental value associated with the business concern, whicz is individual from the value of the real estate merely. Going - concern value contains an intangible enhancement of the worth of an operating business enterprise which is produced by the adjustment of the land, building, labor, equipment and marketing operation. Indicates that such a definition provides an understanding of the matter, but offers no hint about what to do. A definite numercial sample showing how to estimate going-concern worth and how it varies from a market value estimate would be a helpful addition to the literature (Rabianski J. S., 1996).

K.C.W. Chen, B.K. Church pointed out that both researchers and practitioners are concerned that market participants are interested in the auditor estimate of going concern, especially in light of the growing number of bankruptcies over the past decade (Chen K.C.W., Church B.K., 1996).

What does the current value of the company consist of?

Goodwill consists of:

Intangible assets:

• company mark names,
• trademarks,
• patents,
• rights for production,
• company's reputation,
• owned technologies,
• knowledge,
• customer contracts,
• customer loyalty.

Assets:

• value of inventory,
• buildings,
• other tangible assets.

References

• Chen K.C.W., Church B.K.(1996) Going Concern Opinions and Market`s Reaction to Bankruptcy Filing The Accounting Review, 71,1 p. 117-128.
• Oswald, L. J. (1990). Goodwill and Going-Concern Value: Emerging Factors in the Just Compensation Equation. BCL Rev., 32, 283.
• Rabianski J. S. (1996) Going-concern value, market value, and intangible value The Appraisal Journal, 64,2 p. 183.

Author: Sylwia Wierciak