What is the meaning of 'liquidation value'?

Liquidation value refers specifically to the amount an asset could sell for in a distressed sale, which often occurs when the seller is under pressure to sell quickly, such as in bankruptcy or other urgent financial circumstances. In such situations, the sale price is typically lower than the asset's market value, reflecting the urgent need for liquidity rather than the asset's fair market worth under normal conditions.

Understanding liquidation value is especially important for potential buyers, investors, and lenders because it can significantly impact financial decisions and assessments of risk associated with an asset. In contrast to other values, such as projected market worth or acquisition cost, liquidation value takes into account the immediate sale conditions and the urgency that can lower the price at which an asset can be sold.