Explain what assuming a going concern means and set a going concern value against a liquidation value
The idea
Most valuations assume the company will keep operating for the foreseeable future, so its value comes from the cash its assets generate while in use. That going concern value is usually higher than liquidation value, which is what the assets would raise if the business stopped trading and sold them, less its liabilities. The ordering can reverse when a firm destroys value: if the assets earn less in use than they would fetch on sale, owners are better off liquidating. An orderly liquidation, with time to find buyers, raises more than a forced sale. The trap is applying a going concern model such as a dividend discount model to a distressed company whose survival is genuinely in doubt, where liquidation value sets the floor.
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