Break-up value

Updated: Aug 20, 2021

An alternative to selling a business as a going concern is to sell it piecemeal, each asset separately. The value put on a business or a group of related assets break-up value and, in most instances, this break-up value and, in most instances, this will be the maximum amount realizable on disposal of those assets. The term is also used in the context of valuing ordinary shares in a company. If there is no known value for shares, i.e. if they are not quoted on the Stock Exchange or on the Unlisted Securities Market and there is no figure at which they have recently changed hands, then they can only be valued either on the basis of estimated minimum earnings or on the break-up value of the assets they represent. This break-up value can only be an approximation and will be calculated by estimating the likely net realizable value of all assets, assuming they are disposed of individually in a free market, deducting from the total thus ascertained external liabilities and dividing the result by the number of shares. If there are shares which have priority of repayment over the ordinary shares, an adjustment must be made for amount applicable to those shares. The share value thus calculated is also sometimes known as the net asset value.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.