Lesson 6 of 8
Building a liquidation analysis
Take a real balance sheet to a break-up value: 1,789.9 million of book assets become 809.7 against claims of 1,163.8, on haircuts you chose.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- A liquidation analysis takes each asset at what it would fetch outside the business, not at what it cost.
- Goodwill and intangibles go to zero: they exist only because the business is a going concern.
- The haircuts are the analyst's assumptions, they move the answer more than any line item, and they have to be written down.
A liquidation value is the floor under a distressed situation. It is also the most assumption-heavy number in this course, which is why the assumptions get printed beside it.
Walk one real balance sheet down
- Start from the filed assets. SunCoke's fiscal 2025 balance sheet carries total assets of 1,789.9 million dollars.
- Write off what only exists inside a going concern. Goodwill of 55.6 and other intangibles of 44.0 recover nothing in a break-up.
- Haircut the fixed assets. Property, plant and equipment of 1,202.7 is mostly cokemaking plant built for one purpose beside one customer's steel mill. Taking 40 cents on the dollar is a judgement, and a defensible range here is wide.
- Haircut the working capital. Receivables of 111.5 at 85 cents, inventory of 219.9 at 60, other current assets of 42.9 at 25, other non-current assets of 24.6 at 10. Cash of 88.7 comes across at full value.
- Add it up. The estimated recovery is 809.7 million.
- Set the claims against it. Total liabilities are 1,163.8 million, of which 703.6 is debt. The residual for shareholders is minus 354.1 million.
From book assets to an estimated break-up value
- Total assets, as filed$1,789.9m
- Goodwill and intangibles to zero−$99.6m
- Plant at 40 cents−$721.6m
- Inventory at 60 cents−$88.0m
- Receivables at 85 cents−$16.7m
- Other current assets at 25 cents−$32.2m
- Other non-current assets at 10 cents−$22.1m
- Estimated recovery= $809.7m
What the negative residual means
It does not mean the shares are worth nothing. The market values this company's equity at about 809 million dollars, on 85.5 million shares at the close stored 2026-09-15.
It means the market is pricing a going concern rather than a pile of assets: a business that still generated 42.3 million of free cash flow in a loss-making year, with contracts running to stated dates. The liquidation number is the floor the equity would have if that stopped being true, and here that floor is below zero.
That is the ordinary result for an operating company, and it is why a liquidation analysis is a distressed tool rather than a valuation method. It becomes the governing number only when the going concern is in doubt.
The haircuts are the analysis
Change the plant recovery from 40 cents to 60 and the estimated recovery rises by 240.5 million, which takes the residual from minus 354.1 to minus 113.6. Change it to 80 cents and the equity is covered.
No filed figure moves. That sensitivity is the reason a liquidation analysis is always presented as a range with its assumptions listed, and the reason a single point estimate from one is worth very little.
Three questions discipline the haircuts. Is there a market for this asset outside this company, and who is in it. Would it be sold into a distressed market alongside similar assets from similar companies. And what does the filing say about its condition, its age and any lien already on it.
What the walk leaves out
Costs. A liquidation runs professional fees, wind-down costs, employee claims and contract rejection damages, all of which rank ahead of the shareholders. It also takes time, and the claims accrue interest while it does.
A full analysis prices those and produces a lower number than the walk above. The walk is the starting point, not the finish.
Check yourself
Why do goodwill and intangibles recover nothing in a liquidation?
- Because they are non-cash items
- Because they represent value that exists only while the business operates as a going concern
- Because accounting rules require them to be written off first
Show the answer
Answer: B.
Goodwill is the premium paid over identifiable assets. Break the business up and there is no premium to sell.The residual for shareholders came out at minus 354.1 million while the market values the equity near 809 million. What explains the gap?
- The market is wrong
- The market is pricing a going concern, and the liquidation number is a floor that only governs if the business stops being one
- The haircuts were too generous
Show the answer
Answer: B.
An operating company is normally worth more than its assets in a break-up. The liquidation value becomes the relevant number only when continuing is in doubt.Which part of a liquidation analysis moves the answer most?
- The filed asset values
- The recovery assumptions, which are the analyst's own and move the residual by hundreds of millions
- The order of the claims
Show the answer
Answer: B.
Moving the plant recovery from 40 to 60 cents shifted the residual by 240.5 million with no filed figure changing.Sources
- SunCoke Energy, Form 10-K, fiscal year ended 31 December 2025, filed 2026-02-20, accession 0001514705-26-000010: the balance sheet, free cash flow and share count behind every filed figure above.
- The US Bankruptcy Code, Chapter 7, and the priority of administrative expenses ahead of unsecured claims.
- Graham and Dodd, Security Analysis, 1934: asset value as a floor, and the discounts applied to each asset class in reaching it.
What this leaves out
- Every recovery rate above is assumed, not filed. A different and equally defensible set moves the residual by hundreds of millions.
- The walk excludes wind-down costs, professional fees, employee claims and contract rejection damages, all of which rank ahead of shareholders.
- Book value is a starting point that can understate as well as overstate: long-held land and fully depreciated plant may fetch more than they are carried at.
- Nothing here is advice about any security.