Another potential valuation method, the net asset value method resembles the liquidation value approach to determining equity value. The net asset value method, much like the liquidation approach, attempts to value the common equity on the basis of the fair market value of the firm�s net assets. Net assets are computed as total assets minus total liabilities. The valuation technique attempts to ascertain the fair market value of the assets, deducts the book value of the liabilities, and determines a value per share based on the residual value, termed net asset value.
In general, the courts have recently rejected this approach in most cases because it does not value the firm as a going concern. For instance, in TV58 Limited Partnership v. Weigel Broadcasting Co., the judge rejected an asset value approach prepared by Merrill Lynch. Despite the fact that Merrill Lynch is one of the most highly respected investment banking firms in the U.S., the judge stated, �While a cost (or �asset value�) approach may occasionally be appropriate in valuing a going concern, it tends to undervalue intangible factors of a business (i.e. goodwill and synergy).� As stated by the judge in this case, the biggest flaw associated with this approach is the fact that the shareholder is not compensated for the future earnings potential of the entity. Other intangibles, such as brand names and human capital, can often be the most valuable assets a firm has.
Occasionally this approach is the best valuation method available and in such cases, the court has accepted it as a valid and acceptable approach. For example, in cases where it is inevitable that the firm will be dissolved, the net asset value approach, or the liquidation approach are often the estimators of fair value. However, it should be noted that this approach is being rejected by the court more often as more sophisticated valuation methods are being developed and used in the financial community.
Thanks to all of you who read and recommended acknowledging the pain we and many many others who did not reply or are not part of the board or has sold off have gone through since the BK.
Some of the people may have bought more just to recoup the losses if their initial incestment gave them the affordablity to do so.
Many of us bought pre-BK thinking, even at that time, that the stock was worth more than $2.00 based on its fundamentals compared to other companies in the IPP sector and almost all other companies in similar situation had been refinanced at the last minute.
I believe it was our own fate for those who lost quite a bit, in all different ways. We can now only hope for the best with the outcome that is fair as the future rolls on.
That must be the heavy institutional dumping.
Why would an individual investor sell for .20/share when the day before they were holding 10 times the value.
I can understand, if the stock went gown 10% or little more and you sell for the risk of loosing anymore, but what do you get in your hand by seling in next 4-5 days post BK for .17-.21?
So my reasoning is based on that institutions had to sell and I believe, they were not holding more than 30% at that time. I believe, they also sold off in last couple of months before BK as them being institutions and should be reducing risks.
If the vultures arean't cheating and buy a stock in distress , more power to them .
If a stock is selling at extreme multiples , it's not a good buy , it may be a buy after getting hit hard. Warren Buffett made a furtune using this technique.
Very basic stuff.