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Definition: Going Concern Value
Going concern value is defined as the value of a company if it is assumed to continue its operations. Simply put, it is the value of a business enterprise that is anticipated to continue its operations into the future. Going concern phenomenon of a business is that the business continues its operation without the threat of liquidation at least for foreseeable future (at least for the next 12 months of business). Hence, the declaration of going concern implies that the business has no intention of liquidating its assets in the foreseeable future.
If the company with all its assets kept intact is sold with the intent of keeping it in operation with the new ownership, the value of the company is the going concern value. If the company is sold off and the new ownership discontinues the operation of the company, the value of the company is the liquidation value. In fact, the going concern value is the sum of the liquidation value and the value of the company’s intangible assets. Intangible assets may include company brand, goodwill, customer perception etc. Going concern value of a business enterprise normally results from factors like good reputation, well-trained workforce, operational excellence, patents, permits, licenses etc.
It is sometimes confused with the market value of the business which is the sum of the liquidation values of the individual assets of the company. The going concern value is greater than the market value by the firm’s liquidation value and is recorded in the firm’s balance sheet. The going concern value of a company is of utmost significance during a merger or acquisition where the parameters like its future earning power, the value of the synergy, the company’s intellectual property etc. are taken into consideration.