The first rule in calculating liquidating value is that the liabilities are real but the assets are of questionable value.
This means that all true liabilities shown on the books must be deducted at their face amount.
The value to be ascribed to the assets however, will vary according to their character For more detail, see our posts Valuing long-term and fixed assets, Portfolio construction and Marty Whitman’s adjustments to Graham’s net net formula.
In its simplest terms the question comes down to this: Are these managements wrong or is the market wrong?
The entire 13-year study sample size was 645 net current asset selections from the New York Stock Exchange, the American Stock Exchange and the over-the-counter securities market.
The minimum December 31 sample was 18 companies and the maximum December 31 sample was 89 companies.
He may have to sit back and watch them dwindle and disappear as operating losses take their toll.
For that reason the public refuses to accept even the cash holdings of corporations at their face value.”“The stockholders do not have it in their power to make a business profitable, but they do have it in their power to liquidate it.
The mean return from net current asset stocks for the 13-year period was 29.4% per year versus 11.5% per year for the NYSE-AMEX Index.