Definition of Liquidation

Liquidation

When a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers
are distributed to shareholders. Any transaction that offsets or closes out a Long or short position. Related:
buy in, evening up, offsetliquidity.

Liquidation

The process of selling off all the assets of a business entity, settling its liabilities,
and closing it down as a legal entity.

liquidation

Sale of bankrupt firm’s assets.

Involuntary liquidation preference

A premium that must be paid to preferred or preference stockholders if
the issuer of the stock is forced into involuntary liquidation.

Liquidation rights

The rights of a firm's securityholders in the event the firm liquidates.

Liquidation value

Net amount that could be realized by selling the assets of a firm after paying the debt.

Liquidation Value

The net proceeds (after taxes and expenses) of selling the assets
of a company at fair market prices

liquidation value

Net proceeds that would be realized by selling the firm’s assets and paying off its creditors.

LIFO Liquidation

A reduction in the physical quantity of an inventory that is accounted for
using the LIFO inventory method.

Buy in

To cover, offset or close out a short position. Related: evening up, liquidation.

Equity

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
assuming its liquidation at the going market price.

Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).

Offset

Elimination of a long or short position by making an opposite transaction. Related: liquidation.

Open interest

The total number of derivative contracts traded that not yet been liquidated either by an
offsetting derivative transaction or by delivery. Related: liquidation

Preferred stock

A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

Preferred stock

A type of stock that usually pays a fixed dividend prior to any distributions
to the holders of common stock. In the event of liquidation, it must be paid
off before common stock. It can, but rarely does, have voting rights.

bankruptcy

The reorganization or liquidation of a firm that cannot pay its debts.

Subordinated Debenture

A bond having a claim on assets only after the senior debt has been paid off in the event of liquidation.

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