What are the key differences between a liquidation analysis and a going-concern analysis in restructuring, and when would you use each?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A liquidation analysis estimates the value of a company's assets if sold piecemeal, typically yielding lower recoveries due to forced sale discounts and costs. A going-concern analysis values the business as an operating entity, assuming continued operations, often yielding higher value. In restructuring, we compare both to determine if a going-concern is viable; if liquidation value exceeds going-concern, the company should be liquidated. The liquidation analysis also serves as a floor for creditor recoveries and is used in court to justify restructuring plans.
WHAT INTERVIEWERS LISTEN FOR
- ✓Liquidation: piecemeal, forced sale, lower value
- ✓Going-concern: operating, higher value
- ✓Comparison to decide restructuring vs. liquidation
- ✓Liquidation as recovery floor
COMMON MISTAKES
- ✗Claiming liquidation always yields more
- ✗Ignoring costs of liquidation
- ✗Not linking to creditor recoveries
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