The only recommendation Graham makes with regards to using book value as a valuation metric is that the purchaser ensures that they understand if they are satisfied with any discount/premium they are paying. He arrives at this conclusion by considering two contradictory models for how book value affects price, he sees both models as equally valid, so he cannot make any more concrete recommendations. The first model is that if a company is trading a significant multiple to it’s book value then this implies high returns from cash invested which attracts competition lowering future returns. The other model is that the premium is justified by an intangible that isn’t recognised in the book value and cannot simply be bought for cash by a competitor.
Question 2:
Graham describe several derivatives of book value (Current Asset Value, Cash Asset Value and Liquidation Value) that are useful approximations of what a business could be sold for if it stopped trading, the assets were sold and liabilities cleared. If a company is trading at a price below book value then it can be purchased and either liquidated, sold to a trade buyer, held until trading improves (knowing there is a floor to the realisable value) or some combination of all three. There are risks associated with this approach which are highlighted in the answer to question 5&6. These opportunities don’t exist to the same extent as when the book was written. I believe this is because there is a greater awareness of this strategy and the strategies that can be used to correct the valuation.
I believe this was down to early private equity that bought companies in this position and took them private so they could the actions highlighted and return them to the market at a higher price. Activist shareholders also contribute to this by buying stakes in companies and exerting their ownership rights to effect change.
Question 3:
Graham applies two general principles for calculating liquidation value. The first principle is that liabilities are valued at book value and assets at less than book value. Secondly the reduction in asset values is related to the type of asset with cash being the only asset valued at book value. Grahams suggested liquidation values as a percentage of reported values are:
Cash - 100%
Receivables - 75-90%
Inventories - 50-75%
Fixed Assets - 1-50%
Graham provides a range of percentages, which is an important reminder that these values are not guaranteed and that the judgement of the analyst is an important factor.
Question 4:
Stock 1 - TST.L Touchstar PLC
At June 2025
Total Liabilities - £3.5M
Cash - £2M
Receivables - £1.7M
Inventories - £0.9M
Fixed Assets - £0.1M
Right of Use Assets - £0.6M
Liquidation value (Low) = 2+1.7*0.75+0.9*0.5+0.6-3.5 = £0.8M
Liquidation value (High) = 2+1.7*0.9+0.9*0.75+0.6-3.5 = £1.3M
Market Cap £6M
I have included the Right of Use Assets at full value as these have an approximately matching liability, the company could negotiate a break in the lease.
I’ve run out of time to analyse a second company
Question 5:
In order for an investment of this type to be profitable either the earnings prospects must improve and/or assets be sold off above liquidation value. Therefore if a company continues to make substantial losses and does not liquidate/sell assets then the value of the company would continue to decline. Even if the company takes the correct actions, if it does do so quickly enough the investor can still lose money as the book value will have declined further.
Question 6:
Management is critical to the successful investment of a stock trading below liquidation value. With the exception of an industry declining for exogenous reason everything else depends on the quick actions of management. Management is responsible for liquidating assets, identify assets that can be sold and turning around failing operations.
Question 7:
I used a stock screener to filter for LSE listed stocks with a Price/Tangible Book Value between 0 and 1. This returned 48 stocks out of the 1746 listed on the exchange, less than 3% of stocks. Filtering out stocks with a market cap of less than £10,000,000 and those linked to countries that are un-investable, for example Russia, the number of stocks reduce to 34. Removing stock for jurisdictions that I would need to research further before deciding it to invest or not reduces the number to 25. Of the 25 I put them in groups that require different techniques for analysis:
- Asset Managers - 11
- Banks - 5 -
- Real Estate - 2
- Operating Company - 7
Banks, Asset Managers and Real Estate all hold bonds, cash, equities, properties and so the soundness of these assets would need assessing. If the assets are not liquid their value and salability would need to be determined independently. Operating companies would be assessed as outlined by Graham. Digging further into these companies 2 operate in uninvestible countries and 1 is a closed end fund. The remaining companies all appear to be due to a calculation issues in the source I’m using.
Question 8:
LLM will not reliably calculate data for you, however there is a work around….
These instruction use Gemini 2.5 Pro with Canvas selected.
Create a csv file with the following contents:
Company Name,Total Liabilities,Cash,Receivables,Inventories,Fixed Assets,Right of Use Assets
Attach the csv you just created to the query and type the following:
‘Attached is a csv of company financial data, each row represents one company. Row one is a list of column names. I need to calculate a liquidation value for each company. The Liquidation value = Cash + Receivables*0.75 + Inventories *0.5 + Fixed Assets * 0.01 + Right of Use Assets - Total Liabilities. I would like you to output the liquidation value for each company.’
Once the query has run hit ‘Export To Colab’, which will open another window. In the new window click Connect, open Files and Upload the csv created above. Finally hit ‘Run All’ and a file with the calculated values will appear in the file viewer.
Right - in order for a net-net liquidation value to be useful, there must be a high probability of the company actually being liquidated and the proceeds returned to shareholders. Otherwise it's just a theoretical exercise with little practical value.
Book value can still be useful because it gives you a rough idea of what the company has built up on its balance sheet over time. It is simple, audited, and doesn’t swing around like earnings. It also helps you notice when the market price looks unusually low compared to the company’s net assets. The problem is that book value can be misleading. Some assets may not be worth what they’re carried for, and in many modern businesses the real value is not on the balance sheet at all. Book value works better for companies with real, tangible assets and less well for asset-light companies.
Question 2:
Graham thought book value is practical mainly when you are dealing with companies where the assets are actually tangible and could be sold at some reasonable fraction of their value. He used it most when the stock was trading far below that number, giving a margin of safety. Today, that still holds in industries like shipping, real estate, and some industrial companies. For software or brand-driven companies, book value tells you very little. So the principle still applies, but the number of places where it works is much more limited now.
Question 3:
Graham’s liquidation process is basically a very conservative mark-to-reality exercise. He takes the balance sheet and applies heavy haircuts to most asset categories. Cash stays at full value. Receivables get discounted. Inventory is marked down a lot. Other current assets get cut in half. Fixed assets are marked way down because they usually don’t sell anywhere close to book value in a forced situation. Intangibles are left out. Then he subtracts all liabilities. The goal is simply to make sure the investor is protected even if things go badly.
Question 4: Liquidation Analysis for Two Stocks Below Tangible Book Value
Below are the updated calculations using QuickFS TTM numbers.
ZIM
Inputs
Cash 1314.7
Short-term investments 800.4
Receivables 908.5
Inventories 212.2
Other current assets 25.1
Net PPE 6844
Other long-term assets 68.5
Total liabilities 7346.8
Haircuts applied
Cash 1314.7
Short-term investments 800.4
Receivables at 80 percent 726.8
Inventories at 66 percent 140.1
Other current assets at 50 percent 12.6
PPE at 15 percent 1026.6
Other long-term assets at 10 percent 6.9
Total adjusted assets
4028.1 million
Subtract liabilities
4028.1 minus 7346.8 = about negative 3319 million
Conclusion
Even though ZIM trades below tangible book, it fails the Graham liquidation test. The main reason is that vessels do not hold their book value in a forced sale.
GSL
Inputs
Cash 141.375
Short-term investments 26.15
Receivables 12.843
Inventories 18.905
Other current assets 101.969
Net PPE 1903.274
Other long-term assets 168.729
Total liabilities 909.764
Haircuts applied
Cash 141.38
Short-term investments 26.15
Receivables at 80 percent 10.27
Inventories at 66 percent 12.48
Other current assets at 50 percent 50.98
PPE at 15 percent 285.49
Other long-term assets at 10 percent 16.87
Total adjusted assets
543.62 million
Subtract liabilities
543.62 minus 909.764 = about negative 366 million
Conclusion
Like ZIM, GSL also fails the liquidation test. The discounted value of the fleet is well below the liabilities.
Question 5:
You can lose money buying below liquidation value in a few ways. The assets might not sell for the amounts you assumed. The company might burn cash while you wait. Management might make decisions that reduce asset value. Or the catalyst you are counting on may never show up. Liquidation value is only helpful if the gap eventually closes.
Question 6:
Management matters a lot here. If the business is trading below liquidation value, you need people in charge who will act in a shareholder-friendly way, not ignore the discount. Poor management can waste the margin of safety or drag things out so long that the assets deteriorate. Good management can help the value surface.
Question 7:
For the two companies I looked at, ZIM and GSL, both initially seemed interesting because they were trading below tangible book. That is the type of situation that usually gets attention in a Graham screen. But once I pulled the full QuickFS data and applied the haircut method, both ended up with negative liquidation values. Almost all their book value sits in vessels, and in an actual forced sale those would not come close to book value. So under Graham’s strict liquidation rules, they are not attractive. They might still make sense on earnings power or replacement cost, but not on liquidation value alone.
Question 8:
A helpful AI prompt based on Part 6 would be something like:
“Using the company’s most recent balance sheet, apply conservative Graham-style haircuts to each asset category, remove intangibles, subtract all liabilities, and calculate liquidation value per share. Then explain whether any margin of safety exists. reasoning_effort = high.”
Book value provides a benchmark of what investors are paying relative to the company’s net assets. “what one is actually getting for his money in terms of tangible resources.”
Limitations :
1. Book value reflects historical costs, not current market values.
2. Intangible assets, brand value, and IP are often understated or ignored.
3. High RoCE companies tend to have higher multiples on book value
Question 2:
Graham emphasizes that even if book value is often not a determining factor, it deserves “at least a fleeting glance” before buying or selling. This aligns with the margin of safety principle: assets provide a cushion against downside risk.
Today, it’s appearing less central but still valuable as a reality check in asset-heavy or distressed contexts.
Question 3:
Grahams approach crisply put is “liabilities are real but asset values on the balance sheet must be questioned”. So liabilities must be taken at their full face value since creditors are entitled to complete repayment before shareholders receive any residual claims, while asset values on the balance sheet require careful scrutiny because their realizable worth in liquidation often diverges significantly from book figures.
Within assets, some adjustments suggested are
• Cash is taken at full value. (taxes ?)
• Receivables are discounted for collection risk. (80%)
• Inventories are marked down to reflect current market quotes with difficulty of sale. (50%)
• Fixed assets & intangibles are heavily discounted, often assumed to realize only a fraction of book value. (20%)
Finally, the current-asset value (cash + receivables + inventories) provides a rough measure of liquidation value. Noncurrent assets often realize enough to offset the shrinkage in current assets.
Question 4:
ONGC (BSE: 500312 ; NSE: ONGC) ONGC is the largest crude oil and natural gas company in India, contributing around 60% Indian domestic production.
• Current Assets
o Cash assets @100%, 1227 @100% = 271
o Receivables @ 80%, 213 @80% = 170
o Inventories @67%, 600 @67% = 402
• Fixed Assets @ 15% 551@15% = 82
• Less current liabilities = 38
• TOTAL VALUE = 887
• Estimated liquidating value per share = 70
• Book value per share = 292
A good example to show the difference because assets are not equally liquid, and forced sales rarely achieve book values. Graham’s thesis: current-asset value provides a rough measure of liquidation value, since noncurrent assets usually make up for the discounts applied to inventories and receivables.
Question 5:
If a company is burning through its cash, receivables, or inventories at a fast pace, the liquidation cushion quickly disappears. Graham warns against issues “losing their current assets at a rapid rate and show no definite signs of ceasing to do so.”. example from book, Hupp Motors lost more than half its cash and over 60% of net current assets during the Depression, meaning its liquidation surplus could soon be dissipated.
Undervalued stocks require some catalyst ideally corporate actions apart from improved earnings, dividends, or industry recovery, without which the discount to liquidation value may persist indefinitely & the investor trapped
Without earnings support, the market may continue to penalize the stock. Graham advises analysts to prefer companies with “satisfactory current earnings and dividends or a high average earning power in the past.”
In short, Poor governance (management fails to unlock assets) , declining industries, or structural disadvantages can prevent value recovery even when assets exceed liabilities
The answer to this question can be summarised as the definition of value traps ?
Question 6:
Unlocking of value for stocks selling below liquidation value which often appear undervalued, but he stressed that their ultimate attractiveness depends heavily on management’s role and shareholder vigilance
For stocks below liquidation value, management can be the catalyst that unlocks value:
• By repurchasing undervalued shares,
• By liquidating or restructuring unprofitable operations,
• By improving transparency and governance,
• Or by distributing excess cash through dividends.
Without such action, undervaluation may persist, and shareholders may never benefit from the apparent margin of safety.
Question 7:
Sunflag Iron & Steel Company Ltd (BSE: 500404 ; NSE: SUNFLAG). The company manufactures sponge iron and pig iron in-house using Direct reduced iron (plant) and mini blast furnace (MBF)
Assuming investments are marketable and realizable, liquidation value is ~₹230 per share—still below the market price (~₹259). This is not a sufficiently large discount by Graham’s standards. Will find another one which has this.
Question 8:
You are an expert in Benjamin Graham’s liquidation methodology. Given the inputs below, produce only numeric calculations and concise numeric outputs (no long commentary). Show each arithmetic step.
Required inputs (fill values):
• Company name / ticker of the stock
Default haircuts (use unless overridden):
• Cash & marketable securities = 100%
• Receivables = 80%
• Inventories = 67%
• Investments (marketable) = 100%
• Investments (unlisted) = 15%
• PP&E & other noncurrent = 15%
Required outputs (numeric, in this order):
1. Current assets after haircuts: list each line and subtotal.
2. Noncurrent assets after haircuts: list investments and PP&E and subtotal.
6. Liquidation value per share = Residual equity ÷ Shares outstanding. If Residual equity ≤ 0, state “0”.
7. Market cap = Shares outstanding × Market price.
8. Discount / premium to liquidation = (Market cap − Residual equity) ÷ Market cap (express as %; if Residual equity ≤ 0, give Market cap ÷ Market cap = 100%).
It's a commonsense business sniff test. With a 'fleeting glance', I can become aware of the value of the tangible assets I'm purchasing. When used in conjunction with the market price, I can gauge whether I'm paying a premium or getting a discount for that value.
Graham acknowledges that the variability in assigned asset value limits book value usefulness as measure of valuation. Fixed assets might be overinflated or overly depreciated, current assets are often overstated, and intangibles may hold little value, no value, or may in fact have substantial value.
Question 2:
Graham says that book value is generally not a useful metric, except in rare cases where an excellent company is trading below its liquidation value--the 'extraordinary or extreme case'. Where there is a credible chance of recovery and a strong margin of safety in hard assets, there could be a bargain.
When this book was written, more companies met this criterion. According to the introduction to Part6, this is not the case today. Companies trading below liquidation value today are less likely to be a 'hidden gem', and more likely to be 'deeply troubled'. They are selling for less than liquidation value for good reason. Additionally, in the case of asset-light companies which are prevalent today, there isn't usually a margin of safety provided by hard assets. The 'extraordinary' case would rarely for these types of companies.
Question 3:
He isn't looking to calculate the exact liquidity, but rather to get a rough idea to determine if shares are selling for less than the stockholder's liquidation portion. He uses Current Asset value minus liabilities and prior claims as a rough measure of liquidity value. For an even more conservative measure, he also looks at Cash Asset value minus liabilities and prior claims.
Current Asset Rough Liquidity Value --- $2.7B - $7.1B Total Liabilities = -$4.1B
No margin of safety if liquidated.
Question 5:
Loss may occur if the thesis for recovery does not pan out and earnings continue to fall. If the odds are remote for needed policy changes, acquisition by a stronger company, or liquidation, recovery will be difficult. If the company has not demonstrated strong average earnings in the past, this would be an unwise investment. Additionally, timing is key; buying when the market is overvalued can result in even greater losses for weaker companies, while buying when the market is undervalued risks missing out on higher-quality operations that are just as affordable and likely a safer, better investment.
Question 6:
Alignment of interest is uber important because their actions and recommendations directly influence the chance of recovery. Will management address inefficient or overly aggressive use of assets that may have increased earnings? Will they consider new ownership or mergers to optimize asset utilization? If all else fails, would they accept reality and liquidate, prioritizing the financial well-being of debt and equity holders, even at the loss of their own jobs? If there is trust in the management to make these potentially unpopular decisions, they may not be depended on to assist in the turnaround.
Question 7:
I did not find anything in my search that would qualify. The one I found that met the quantitative metrics but fails on the qualitative. At best I think Grahm would label it a speculative 'bargain' and doubt he'd be satisfied with.
Performance Shipping Inc.(PSHG)
CAV - TL = rough liquidation
$100M - $51M = $49M
$49M/12.43M shares Out = $3.94 liquidation value per share
Current price: $2.19
Discount to liquidation value: ~50%
Qualitative Concern: risk of oversupply, share dilution pattern, management concerns, resistance to credible take over that could benefit shareholder, operational risks and industry volatility, very low chance of liquidation
Question 8:
I ran something like this in two part to help with the questions.
1) Test a list of tickers I gathered that are trading at P/TBV < 1 and see if liquidation value was positive.
2) Deeper analysis into potential recovery story and risks.
Prompt 1: Speed benefit, but I still went backed and checked the numbers because it doesn't always grab them correctly.
Role: You are a security analyst applying Benjamin Graham’s framework from *Security Analysis* part 6 to check the liquidation value of a stock trading below TBV.
Input:
• TIKR List: [LIST_OF_TIKRS_TO_TEST]
Task: For each TIKR listed, run the following:
1. Fetch latest balance sheet
2. Calculate Rough estimate of Liquidation Value Calculation
a) Current Asset Value – Total Liabilities
b) Cash Asset Value – Total Liabilities
3. Output 'possible bargain' if either output is positive; otherwise flag as unwise
Prompt 2: Worked fine in Smart(gpt5) in copilot to give brief overview and flagged enough issues that I didn't feel the need to do Deep Research
Role: You are a security analyst applying Benjamin Graham’s framework from *Security Analysis* part 6 to analyze the investment merits of a stock selling below TBV: INPUT_TIKR
Input:
- Fetch most recent financials, 10K and available earnings call transcripts for notes on asset quality, management, and earnings history:
Task:
1. **Liquidation Value Calculation**
- Compute two rough liquidation values:
a) Current Asset Value – Total Liabilities
b) Cash Asset Value – Total Liabilities
2. **Valuation Comparison**
- Compare the company’s current market capitalization to both liquidation values.
- Determine whether the stock trades at a sufficiently large discount to liquidation value to qualify as an “extraordinary case” Graham would consider attractive.
- Discuss risks: why a company might trade below liquidation value (e.g., structural decline, poor management, lack of average earning power).
- Evaluate management’s role: is there evidence they would act rationally to preserve or unlock value?
- Is there a possibility of merger or acquisition that could revitalize it?
- Note probability of liquidation if company cannot reverse falling earnings based on historical attitude and behavior of management and stockholders towards company.
3. **Conclusion**
- Provide a clear judgement: Is this stock a potential Graham-style bargain, or is it more likely a “deeply troubled” company selling below liquidation value for good reason?
- Frame the conclusion in terms of Graham’s margin of safety principle.
I was a bit under the weather last week so I couldn’t really make heads or tails of what I was reading. But I’m jumping back in it this week.
1. Book value access as a metric for the amount of capital invested in the business. It’s value highlights what assets are being purchased (at what discount or premium) rather than the income statement which highlights the earnings being purchased. One of the main limitations that comes to mind in a modern context is that there are asset light businesses they can do very well for their investors that aren’t captured well by the values expressed on the balance sheet.
2. It’s of practical use when you can find a company whose market cap is below liquidation value. Especially if it’s trading below cash. In a modern context, I think that’s a lot harder to find outside of a depression era downturn. Maybe during the financial crisis it would have been possible to find more of these types of companies. Granted, I haven’t spent an excessive amount of time looking for this type. Partially because I think that markets have become substantially more efficient than they were during Graham‘s time. If for no other reason than the speed by which information is dispersed, it makes it highly unlikely that a company would trade at that level for very long at all. But if one did find a company trading at that level, there’s probably a good reason for it these days
3. Take 100% of the cash, about 80% of the receivables less usual reserves, about 2/3 of the inventories at the lower of cost or market and add those three with fixed and miscellaneous assets at roughly 15% of their carrying value. Add them up then subtract all liabilities and you have liquidation value.
4. CSIQ - I used their Q3 2025 balance sheet figures for the nine months preceding. With the adjustments to all of the assets, after subtracting all liabilities, I got a negative $5.3B. The adjustments seemed pretty harsh, but I did the work pretty quickly because earnings were just released this morning. This company has been doing a heck of a lot of investment over the past 18 months, it’s probably one of the companies I know best so while this doesn’t pass Graham checklist, I’m still OK with it.
MED - same thing Q3 2025. This one came out to a positive $121M. While I don’t know this company as well as CSIQ. I think that MED falls into the trap category, because their cash burn is pretty intense for a historically profitable company. This segways right into the next question.
5. The company may continue to trade below liquidation value when management is taking no actions to “unlock“ this value. It’s also possible that the company may be in a state of decay like the original textile business of Berkshire Hathaway. This leads very well into the next question.
6. In the case of MED, we could see the importance of management, because arguably this company should be liquidated and assets should be dispersed to shareholders. But even then the market cap of the company is trading at 125, million so management would need to realize values higher than Graham’s percentages in order to provide a net gain to stockholders. The question is would management be willing to give up their salary to liquidate their company for their shareholders?
7. I’d have to spend a lot of time in front of the screen sifting through companies to find one. I can pretty much assure that none of the companies that I follow closely would fulfill the parameters. My watchlist is very much inspired by Thomas Phelps 100 to one of the stock market, so let’s just say I have room to grow finding net-nets.
1. The importance was to show the value of a business, but some numbers may not truly reflect items such as replacement costs therefore not reflect the value of the business. The difference being how much could the business be sold for as opposed to a mathematical calculation.
2. Useful information that can be found on the balance sheet are: how much capital is invested in the business, the ease or stringency of the company's financial condition, details of the capitalization structure, an important check on the validity of reported earnings, and the basis for analyzing sources of income. Arbitrary amounts may be used in different categories and not properly used. The value of assets may not represent the true cost of replacement. Old style book value can be a starting place, but needs to be edited to represent the current state of the company and the economy.
3. Liquidation value is the money that the owners could get out of it if they wanted to give it up. This value is more likely to be more accurate in the private sector than the public sector. This can be due to many reasons such as the character of the assets and the nature of the claim of the liabilities.
4. Liquidation value = Current Assets (less reserves) and adjusted for their character - Liabilities at face value
5. When a company sells persistently below its liquidating value, then either the price is too low or the company should be liquidated. The price below liquidating value of unjustifiable. This is a sign of bad management and/or changing economic environments.
6. The responsibility of management is to act in the interest of their shareholders including the obligation to prevent the establishment of absurdly high or low prices for their securities. Liquidating value should represent the lowest value of a stock. If a stock sells below the liquidation value, the management should seek to understand why and take correcting steps. They should also look at the direction of dividends, and return to stockholders any cash that is not needed in the business. Market price should be governed by earnings, whereas liquidation value depends on asset valuation.
7. NA
8. What has been the 20 year direction of earnings as compared to the 20 year direction of asset value.
Question 1: What are the useful features of using book value as a valuation metric? What are its limitations?
The asset value is audited, which means that it is produced by accountants, who have 4 important principles: conservative, consistent, accruals (matching) and going concern. Graham implicitly picks up on this, though he does not trust it overmuch, saying "Asset value is unreliable" and going on to say plant valuation is basically worthless. He recognizes the importance of "going concern" saying "The analyst cannot calculate accurately the liquidating vale of a given company, since it is ordinarily impossible to estimate what could actually be realized for it fixed assets and what the expenses of the liquidations would be."
Question 2: When does Graham believe book value to be of practical use to the security analyst? What do you think about that in the modern context?
In most cases Graham thinks that it is the earnings power that is important, not the asset values, as covered in previous sessions. However under circumstances where the asset value is significantly higher than the market value it can become useful. In particular when the value of the company is less than the net working capital, and the earnings are still positive. He identifies this as one of the best investment opportunities of all. this is still true, but rare in the modern world, and must be applied with caution where the value lies elsewhere: biotechs, tech, companies which are trying to generate intellectual capital.
Question 3: Describe how Graham approaches calculating a company’s liquidation value.
He says that the net working capital can be turned into cash reasonably efficiently. "As a general rule, at least enough can be realized from the plant account and the miscellaneous assets to offset any shrinkage sustained in the process of turning the current assets into cash." By using this figure as the "minimum liquidating value" of net working capital less total debt, we establish a floor for valuation of the assets with a good margin of safety.
Question 4: Perform Graham’s liquidation analysis for two stocks trading below tangible book value and show all work/assumptions.
IG group.
March 2025 year end figures:
Current assets: $397,993
Total liabilities: $273,447
NCAV $124,546
Current Market cap £46.2
convert to USD $61.0
Looks OK at 50% and maybe a candidate for a play.
Reading the update in October 25, its net cash position changed by -$33M. Net cash position $2M. Ouch. The liquidation of the US branch clearly cost a fortune, and eroded a large part of the cushion in 6 months. They report tough trading in Europe. The CEO walked the plank. in Dec we will see the full carnage. Will I be buying these? I think not.
Portmeirion Group PLC
Final results 31 December 2024
Current Assets: £70,179
Total liabilities: £46,825
NCAV £23,354
Market cap: £14,200
2/3 margin of safety, and it was only a little higher when these results were announced, and they just scraped a profit in 2024. In principle a good candidate for a Graham style buy. I'm amazed I found one, but I can't say I like it as a prospect.
Interim results, 30 June 2025
US tariffs affected sales, clearly tough trading conditions. They give no guidance for the outturn of the second half.
Their bank has changed the terms of its credit, with interest margin up from 1.8% to 3%. A very bad sign.
Dividend cancelled, in my opinion they should not have paid one last year, as it was in their words disappointing.
Onshoring production to the UK. This will probably increase costs, and they don't comment on this aspect.
That is 3 management errors/omissions/evasions on a cursory inspection. Do I trust this management to turn round an aging business, in an unfashionable consumer sector, in a high cost production country? No. Stoke on Trent used to be the powerhouse of the ceramic industry in the industrial revolution, and it lives largely on this heritage. Its decline has been very long term, and even well run businesses like Churchill China have struggled to compete in the modern world.
Question 5: What are some ways in which you can lose money by investing in a stock below its liquidation value?
Many, many, many:
1) liquidation estimate of value too high: sometimes things are sold for a song, far lower than expected, or seems reasonable: even assets that are very tangible, like property, can realise far less than expected.
2) It can take a very long time to liquidate a complex company. LCTM which went bust in 1998 took decades to liquidate, and I once received a check from a supplier who had gone bust nearly 30 years previously, and had a land asset that was eventually sold.
3) Dilution, capital raises, or sale of the whole for very little.
4) Expenses of liquidation can eat up the margin of safety. Legal fees, liquidators fees, surveyors fees, banking fees, and the listing fees, are all substantial, and accumulate over the often protracted process.
Question 6: What is the importance of management when considering stocks that are selling below their liquidation value?
Management quality and probity is crucial here, and the incentives are all wrong. It is a hard, slow, unglamorous and not very career advancing job to liquidate a company. The records are public, and you have to declare you have been involved, often, and explain what happened for ever after. Many institutions will use it as an instant "black ball". Those who have a bright future will usually find a reason to leave, often as early as they can. So only people with no other options remain to do this, and the are often in the business of exchanging a broken reputation for a financial pay out as their last career move. The disposing of assets, often under time duress, presents perfect opportunities for "commissions", "consultancy fees", "side letters of arrangement", or "future job offers". Call them what you like, but the effect is paying the management (out of sight) to make a favorable decision to the buyer of the assets, rather than to the shareholders.
This is the reason that I believe that investors should on the whole steer clear, it really is much more risky than it seems at first glance, especially for smaller enterprises with complex assets.
There are managers who are brought into situations like this: sold as "turn round specialists", and some are excellent and can do an amazing job. But assessing them on appointment is difficult. The old adage, that when a management with a great reputation take over a company with a poor reputation it is usually the companies' reputation that wins, is true often enough, that a wait-and-see policy is best. It is better therefore, to watch the progress, and the share price over the next 12-18 months, even if it means giving up some early gains.
Question 7: Can you find a company that is currently trading at a sufficiently large discount to its liquidation value that if Graham were looking at it today, he would find it an attractive investment? If you can, show your work for why it’s attractive and justify your assumptions.
Put shortly, No. I use Sharescope which allows me to filter by NCAV, and I listed all the UK companies on it. Eliminating special cases like property companies, and various investment trusts and VCs, which don't really qualify as the assets are anything but liquid, I combed through the whole list. It is full of companies that have very good reason for their poor valuations. I'm absolutely certain that Graham would have enough sense not to buy them. For example:
Walker Crips Group PLC
Final results 31 March 2025
Current Assets: £45,800
Total liabilities: £36,700
NCAV £9,056
Market cap: £3,200
Big margin of safety, Market cap 1/3 of NAV. Modest profit on the year.
However:
They avoided a loss by using an exceptional gain - basically they made a right mess in a previous year, and reversed out a 3.8M provision in this year. quoted as "an internal control failure resulted in possible customer detriment"
ignoring this they made a loss of about 3.6M.
There has been a series of resignations from the board in 2025, including the CFO, the Chairman and 2 non execs. All of these are responsible for keeping an eye on the Chief Executive, and making sure things are above board. Clearly they don't like what they see. See my comments in the answer to question 6.
On paper this looks like a good candidate. In practice I would not touch it.
Question 8: Can you think of a useful AI prompt based on the material in part 6?
I found this simple one worked fine:
"Perform Graham’s liquidation analysis for [Company]. Show work and assumptions."
I used the new ChatGPT 5.1. Seems to think harder, and produces a good workmanlike output. Much more detailed than mine, but it applied haircuts to some of the assets, which seemed both arbitrary and overly savage. I could not find reference to them in my copy of Benjamin Graham.
#1: Ideally, book value anchors valuation in fact, not forecast. It measures the tangible capital behind a share and (should) offer a margin of safety when prices fall below that base. However, by the time you see a book value, it’s already old and dated - it captures the past, not earning power. A business is worth what its assets can produce in the future, not just what they cost in the past. At best, book value protects the investor by giving them a valuation floor, but it rarely tells the whole story.
#2: Graham saw book value as useful when it bore a close relation to realizable value - in asset-heavy firms where liquidation or replacement cost mattered more than growth. It guided analysis when markets priced stocks below net tangible worth, offering an objective margin of safety.
#3: Graham estimated liquidation value by marking assets to what they’d fetch in a real sale—cash at par, receivables discounted, inventory and equipment sharply reduced—then subtracting all liabilities. The result was a conservative floor beneath intrinsic value, showing what investors might recover if the business ended tomorrow.
#4: Only had time to find 1:
Medifast ($MED)
Cash & Short-Term Equivalents = $173.5M
Inventory = $23.2M * 50% = $11.6M
Fixed & Intangibles ~$60M * 15% = $8M
Liquidation Value of Assets ~ $193.1M
Minus All Liabilities = $53.5M
Liquidation Value = $139.6M
Current Market Cap = $119.5M
#5: Management! The C-Suite and BOD rarely wants to give up their sweet gigs. A company trading below its breakup value may never liquidate – it may just dwindle to zero. Managers are excellent at wasting capital, issuing dilutive shares, or burning assets in order to justify their salaries. Accounting values can mislead. Recent bankruptcies of First Brands and Renovo are timely examples.
#6: See #5. Management MUST be incentivized via shares/stock options in order to want to maximize shareholder value in these types of situations. Otherwise, they’ll just want to collect their paycheck until everything is gone.
#7: See #5 about $MED (Medifast). Although its future seems dubious, the valuation floor could be reasonable and the company ekes out some cashflow.
#8: I had a hard time using ChatGPT to find non-financial companies that fit the criteria, actually...
I used to own Medifast a long time ago, before GLP-1s came on the scene. Amazing how a business that seemed (to me) at the time to be fairly predictable quickly got disrupted by a drug that came out of left field.
Separately, if I were to pursue MED as a potential net-net, the first question I would investigate is whether management is actually likely to liquidate or if they would rather reinvest the cash into a risky bet to revive the business.
Busy work week. Here is my homework for this week.
1) For capital heavy firms it helps to understand the unit economics of the business and understand if it’s a structurally favorable industry, as well as determine the ease at which another player could try to compete. I think book value is mostly useless as it uses historical costs and management estimates.
1) Book value may be useful in capital intensive industries to gauge unit economics and barriers to entry- it shows how hard it would be for competitors to replicate the business and whether the firm earns strong returns on its invested capital. Beyond this, as it relies on historical costs and management estimates, it can mostly be ignored.
2) Useful to Graham when a stock sold for below its liquidation/book value. In a modern context it could be useful in a distressed/liquidation scenario possibly or in highly regulated rent-seeking industries where government capture
3) Boils down to over-discount everything. If the number still looks good, the investment may be attractive.
If we say you can recover 25% of this it would be roughly 821.25M
Adjusted NCAV = 571.71 + 821.25 = 1,392.96M
Brings us to a NCAV per share of $76.08
SUMMARY: The liquidation of the assets would result in proceeds less than the current selling price and well below the tangible book value. If we changed our assumptions and could collect 50% or 75% of the liquidation of the ships, this would change the math significantly.
5) Liquidation value estimate wrong. Hidden liabilities. Fraud. Management refusal to liquidate.
6) Management decides if liquidation happens. Management controls whether assets are protected or destroyed. Capital Allocation decisions are all management.
7) Mishtann Foods Ltd (BSE: 539594, “MISHTANN”) – India
Screening for
Market Cap ≤ ⅔ × Net Current Asset Value (NCAV)
where NCAV = Current Assets − Total Liabilities
Business: FMCG player focused on basmati rice, salts and other agro products.
Current price: ₹5.03 per share (close, 14 Nov 2025).
Market cap: about ₹542 crore.
Book value per share: ~₹10.9; stock trades at about 0.47× book.
Recent profitability: TTM net profit ~₹335 crore with ROE ~44%.
Red-flag-ish working capital: debtor days ~307; working-capital days have risen sharply.
So it’s a hyper-profitable, very cheap-looking FMCG stock… if the accounting is real and receivables are good.
From a simple net-net screen on Screener, the consolidated current assets and balance sheet snapshot (as of Sep 2025) are approximately:
Current assets (CA): ₹1,874.32 crore
Total assets (TA): ₹1,882.94 crore
Reserves (R): ₹1,061.55 crore
Equity share capital (E): ₹107.82 crore
In Indian financial statements, Total assets = Equity + Total liabilities. So:
Total liabilities 713.57 crore
NVAV = 1160,75 crore
Shares = market cap / price = 1.08 billion shares
NCAV per share is 1,160.75/1.08 billion = 10.8 per share
Compare that to the price of 5.08 and liquidation value is 2x
If assumptions regarding liquidation value are correct there is possibly a Graham style liquidation possibility for this company. Management buy in is another story altogether.
8) Analyze this company as if you were Benjamin Graham evaluating a stock selling below liquidation value. Go beyond the NCAV math and rigorously assess the quality and collectability of receivables, the realism of inventory values, signs of balance-sheet inflation, deterioration in working-capital cycles, and any red flags in accounting practices or auditor comments. Evaluate management integrity, insider behavior, governance risks, and the likelihood that management will protect rather than destroy liquidation value. Judge the probability of a catalyst for value realization versus long-term value decay, and assess business-model fragility or competitive pressures that could erode asset values. Conclude with a clear verdict on whether Graham would invest, size minimally, or reject the stock entirely, explaining why.
Question 1: Book value is useful as a valuation metric because it provides a baseline measure of a company’s net tangible assets, helping investors understand what they are paying for relative to the company’s resources. Comparing book value to market value can indicate whether a company is trading at a premium (suggesting it earns above-average returns on assets) or at a discount (possibly due to weak profitability or undervaluation). Limitations of book value include that it may not accurately reflect the true economic value of assets, since accounting standards can cause discrepancies between reported book values and market realities. Intangible assets, brand value, and future growth potential are also typically excluded, making book value less informative for companies with significant intangible or high-growth assets.
Question 2: Graham suggests book value “deserves at least a fleeting glance” (pg 557, 6th ed.) not as the sole valuation decision but to better understand the nature of what one is buying on a tangible asset basis. I think this is insightful and continued divergence from how I initially took Graham’s attitude face towards investing (e.g. his commonly referenced net-nets). In a modern sense, this doesn’t preclude investors from a universe of asset-light business models (e.g. software or service based models) but more just forces them to understand the nature of their investment better.
Question 3: Graham estimates liquidation value by applying conservative haircuts to each asset category based on what he believes could realistically be recovered in a liquidation. He assumes cash is worth 100%, accounts receivable are discounted for doubtful collections, inventories are marked down heavily (often to ~60% of book), and fixed assets are assigned very low or zero recovery unless they have clear resale value. He then subtracts all liabilities at face value.
Question 4: Perform Graham’s liquidation analysis for two stocks trading below tangible book value and show all work/assumptions.
Inventory $3,530 50% $1,770 (Weighted based on sales mix and product nature)
Prepaid Expenses $281 10% $28
Restricted Cash $32 0% $0 (Not clearly disclosed)
Other Current Assets $756 0% $0 (Not clearly disclosed)
Net Property, Plant & Equipment $7,144 20% $1,429
Goodwill $22,167 0% $0 (Goodwill is 0% in liquidation: DCF-based carrying values don’t matter without a going concern, and CPG history — including Kraft Heinz’s own write-downs — shows buyers pay for brands and tangibles, not goodwill.)
Other Intangibles $37,545 5% $2,063 (Brand cushions are thin — ~40% near impairment and only ~6% strong — so brands and trademarks receive minimal liquidation value, and customer relationships are assigned 0%.)
Other Long-Term Assets $4,851 0% $0
Liquidation value -$30,683
Shares O/S 1,184
Liquidating value per share -$0.04
Company 2: Acacia Research Corporation
Accounting value / Adj. / Adj. Value
Cash And Cash Equivalents $301,780
Total Liabilities Net Minority Interest $192,033 100% $192,033
Net Cash $109,747 100% $109,747
Other Short Term Investments $63,943 100% $63,943 (Short-term investments are Treasury bills and AAA money-market funds; these are cash equivalents and are assumed to recover at 100% in liquidation.)
Accounts receivable $27,141 85% $23,070 (AR at 85% to reflect higher small-company collection risk.)
Loans receivable $3,392 25% $848 (Loans backed by Bitcoin are discounted to 25% of face value to reflect collateral volatility, enforcement risk, and poor forced-sale recoveries)
Inventories $26,490 30% $7,947 (Inventory marked to 30% of book due to mix of industrial electronics, drilling supplies, plastics manufacturing, and high obsolescence/low resale value in liquidation.)
Other Current Assets $17,891 5% $895 (Patent and enforcement rights recorded in Other Current Assets are assigned minimal recovery value (0–10%) given their specialized nature and limited resale market in a liquidation scenario.)
Net PPE $222,708 45% $100,219 (PPE is valued at ~45% of net book value in liquidation, reflecting typical auction recoveries: machinery and equipment sold at ~20% of cost, vehicles at ~50%, computer hardware at ~5–10%, office furnishings at ~5%, buildings at ~40%, and land at 100%)
Goodwill $25,695 0% $0
Other Intangible Assets $55,458 5% $2,773 (Intangible assets (patents, customer relationships, trademarks, developed technology, and favorable leases; $55M NBV) are assigned minimal liquidation value (0–5%) given their specialized nature, lack of standalone marketability, and dependence on continued operations)
Question 5: Analysts have to make sure the company isn’t bleeding assets. If it’s losing cash or writing down inventory, receivables, or PPE, there may be nothing left to liquidate. The business should also have shown real earning power at some point. Graham emphasizes that you need a “fairly imminent prospect” of a favorable development—industry recovery, M&A, policy changes, or an actual liquidation—for the market to close the gap. Without that, the discount can linger. Market conditions matter too: when valuations are very high, these thin, weak names can collapse faster in a downturn; when very low, better businesses become available at similar prices. In short, if assets deteriorate, catalysts never show up, or broader markets move against you, you can still lose money even when buying below liquidation value.
Question 6: Management matters because their incentives often run counter to liquidation. Even if the business is worth more dead than alive, managers are motivated by compensation, job security, scale, and prestige — all of which depend on keeping the company operating and growing. They control information and capital allocation, and they may prefer reinvestment over payouts or asset sales. In short, without management aligned to shareholders, a full liquidation — or any value-unlocking action — may never happen, even when the stock trades below liquidation value.
Question 7: Weyerhaeuser’s underlying asset value offers a margin of safety, especially in today’s cyclical downturn. Using a Graham-style liquidation framework and recent timberland transactions, the company’s 9.245 million acres carry an estimated value of $23.5B — based on $2,000/acre for its 6.7M Southern acres and $4,000/acre for its 2.5M Western acres. Both assumptions sit below recent disclosed comps (Southern ~$2.8k/acre; Northwest ~$7.5k/acre), reinforcing the conservatism. Applying haircuts to the remainder of the balance sheet — receivables (85%), inventories (60%), mills and equipment (50%), construction-in-progress (50%), and zero to prepaid and other assets — produces roughly $26.0B in gross liquidation value. After subtracting $7.2B in liabilities, the net liquidation value is about $18.8B, versus a current market cap of $15.6B, implying a ~20% discount to conservative liquidation value. That discount is primarily cyclical. Lumber prices are soft and the market is pessimistic on housing starts. None of that reflects impairment to the underlying assets. Weyerhaeuser is one of North America’s dominant timber REITs and a leading wood products operator, with nearly 125 years in business across multiple housing cycles. Timberland itself grows biologically regardless of the macro backdrop, adding further downside protection. In Graham’s terms, this leans towards a profile her favored: hard assets marked down by temporary cyclicality, durable long-term earning power, and a current price sitting below liquidation value, with a natural catalyst tied to eventual normalization in the housing and lumber cycle.
Question 8: “Analyze the following company as Benjamin Graham would in Part 6 of Security Analysis (Balance-Sheet Analysis). Focus only on tangible assets, conservatively adjusted. Provide step-by-step calculations. Structure the output as follows:
1. Book Value Assessment What is the company’s current book value and tangible book value? Does the relationship between market value and book value tell me anything about returns on assets, business quality, or market pessimism?
2. When Book Value is Actually Useful Based on the nature of the business (asset-heavy, asset-light, commodity, industrial, software, etc.), is book value a meaningful anchor? If not, explain why and identify what other baseline metric should be used.
3. Liquidation Analysis (Graham Haircuts) Use Graham-style conservative assumptions: Cash = 100% Marketable securities = 100% (unless risky) Receivables = 70–90% depending on customer quality Inventory = 20–60% depending on obsolescence and resale PPE = auction value (typically 10–50% of net book) Land = 100%+ if easily marketable Loans receivable = haircut based on collateral quality Other current assets = 0–10% Goodwill = 0% Intangibles = 0–5% unless legally transferable IP with clear resale Deferred tax assets = 0% Other long-term assets = assign conservatively Subtract all liabilities at 100%. Provide liquidation value per share.
4. Catalysts & Risks (Why a ‘Cheap’ Stock Can Still Lose Money) Is the company losing assets, burning cash, or writing down inventory/PPE? Are there “fairly imminent prospects” of value-unlocking events (industry recovery, M&A, policy change, asset sale)? Does the current market environment help or hurt bargain issues? Is this potentially a trap?
5. Management Incentives Are management incentives aligned with liquidation, asset sales, or capital returns? Or are their incentives tied to empire-building, compensation, and continued operations? Does this reduce the probability that liquidation value is realized?
6. Is This a Graham-Style Bargain? Does the discount to liquidation value exceed 30%? Are the assets stable (e.g., land, timber, cash, inventory)? Is the business cyclical but not structurally impaired? Provide a binary yes/no as well as a reasoned conclusion.
7. Summary of Investment Case One paragraph summarizing: whether the stock is attractive, the margin of safety, the factors that could close the valuation gap, the main reasons to avoid it if not attractive. Return the analysis in a structured, numeric format so that it can be compared across companies.”
Question 1:
The only recommendation Graham makes with regards to using book value as a valuation metric is that the purchaser ensures that they understand if they are satisfied with any discount/premium they are paying. He arrives at this conclusion by considering two contradictory models for how book value affects price, he sees both models as equally valid, so he cannot make any more concrete recommendations. The first model is that if a company is trading a significant multiple to it’s book value then this implies high returns from cash invested which attracts competition lowering future returns. The other model is that the premium is justified by an intangible that isn’t recognised in the book value and cannot simply be bought for cash by a competitor.
Question 2:
Graham describe several derivatives of book value (Current Asset Value, Cash Asset Value and Liquidation Value) that are useful approximations of what a business could be sold for if it stopped trading, the assets were sold and liabilities cleared. If a company is trading at a price below book value then it can be purchased and either liquidated, sold to a trade buyer, held until trading improves (knowing there is a floor to the realisable value) or some combination of all three. There are risks associated with this approach which are highlighted in the answer to question 5&6. These opportunities don’t exist to the same extent as when the book was written. I believe this is because there is a greater awareness of this strategy and the strategies that can be used to correct the valuation.
I believe this was down to early private equity that bought companies in this position and took them private so they could the actions highlighted and return them to the market at a higher price. Activist shareholders also contribute to this by buying stakes in companies and exerting their ownership rights to effect change.
Question 3:
Graham applies two general principles for calculating liquidation value. The first principle is that liabilities are valued at book value and assets at less than book value. Secondly the reduction in asset values is related to the type of asset with cash being the only asset valued at book value. Grahams suggested liquidation values as a percentage of reported values are:
Cash - 100%
Receivables - 75-90%
Inventories - 50-75%
Fixed Assets - 1-50%
Graham provides a range of percentages, which is an important reminder that these values are not guaranteed and that the judgement of the analyst is an important factor.
Question 4:
Stock 1 - TST.L Touchstar PLC
At June 2025
Total Liabilities - £3.5M
Cash - £2M
Receivables - £1.7M
Inventories - £0.9M
Fixed Assets - £0.1M
Right of Use Assets - £0.6M
Liquidation value (Low) = 2+1.7*0.75+0.9*0.5+0.6-3.5 = £0.8M
Liquidation value (High) = 2+1.7*0.9+0.9*0.75+0.6-3.5 = £1.3M
Market Cap £6M
I have included the Right of Use Assets at full value as these have an approximately matching liability, the company could negotiate a break in the lease.
I’ve run out of time to analyse a second company
Question 5:
In order for an investment of this type to be profitable either the earnings prospects must improve and/or assets be sold off above liquidation value. Therefore if a company continues to make substantial losses and does not liquidate/sell assets then the value of the company would continue to decline. Even if the company takes the correct actions, if it does do so quickly enough the investor can still lose money as the book value will have declined further.
Question 6:
Management is critical to the successful investment of a stock trading below liquidation value. With the exception of an industry declining for exogenous reason everything else depends on the quick actions of management. Management is responsible for liquidating assets, identify assets that can be sold and turning around failing operations.
Question 7:
I used a stock screener to filter for LSE listed stocks with a Price/Tangible Book Value between 0 and 1. This returned 48 stocks out of the 1746 listed on the exchange, less than 3% of stocks. Filtering out stocks with a market cap of less than £10,000,000 and those linked to countries that are un-investable, for example Russia, the number of stocks reduce to 34. Removing stock for jurisdictions that I would need to research further before deciding it to invest or not reduces the number to 25. Of the 25 I put them in groups that require different techniques for analysis:
- Asset Managers - 11
- Banks - 5 -
- Real Estate - 2
- Operating Company - 7
Banks, Asset Managers and Real Estate all hold bonds, cash, equities, properties and so the soundness of these assets would need assessing. If the assets are not liquid their value and salability would need to be determined independently. Operating companies would be assessed as outlined by Graham. Digging further into these companies 2 operate in uninvestible countries and 1 is a closed end fund. The remaining companies all appear to be due to a calculation issues in the source I’m using.
Question 8:
LLM will not reliably calculate data for you, however there is a work around….
These instruction use Gemini 2.5 Pro with Canvas selected.
Create a csv file with the following contents:
Company Name,Total Liabilities,Cash,Receivables,Inventories,Fixed Assets,Right of Use Assets
Touchstar PLC,3500000,2000000,1700000,900000,100000,600000
Attach the csv you just created to the query and type the following:
‘Attached is a csv of company financial data, each row represents one company. Row one is a list of column names. I need to calculate a liquidation value for each company. The Liquidation value = Cash + Receivables*0.75 + Inventories *0.5 + Fixed Assets * 0.01 + Right of Use Assets - Total Liabilities. I would like you to output the liquidation value for each company.’
Once the query has run hit ‘Export To Colab’, which will open another window. In the new window click Connect, open Files and Upload the csv created above. Finally hit ‘Run All’ and a file with the calculated values will appear in the file viewer.
Right - in order for a net-net liquidation value to be useful, there must be a high probability of the company actually being liquidated and the proceeds returned to shareholders. Otherwise it's just a theoretical exercise with little practical value.
Question 1:
Book value can still be useful because it gives you a rough idea of what the company has built up on its balance sheet over time. It is simple, audited, and doesn’t swing around like earnings. It also helps you notice when the market price looks unusually low compared to the company’s net assets. The problem is that book value can be misleading. Some assets may not be worth what they’re carried for, and in many modern businesses the real value is not on the balance sheet at all. Book value works better for companies with real, tangible assets and less well for asset-light companies.
Question 2:
Graham thought book value is practical mainly when you are dealing with companies where the assets are actually tangible and could be sold at some reasonable fraction of their value. He used it most when the stock was trading far below that number, giving a margin of safety. Today, that still holds in industries like shipping, real estate, and some industrial companies. For software or brand-driven companies, book value tells you very little. So the principle still applies, but the number of places where it works is much more limited now.
Question 3:
Graham’s liquidation process is basically a very conservative mark-to-reality exercise. He takes the balance sheet and applies heavy haircuts to most asset categories. Cash stays at full value. Receivables get discounted. Inventory is marked down a lot. Other current assets get cut in half. Fixed assets are marked way down because they usually don’t sell anywhere close to book value in a forced situation. Intangibles are left out. Then he subtracts all liabilities. The goal is simply to make sure the investor is protected even if things go badly.
Question 4: Liquidation Analysis for Two Stocks Below Tangible Book Value
Below are the updated calculations using QuickFS TTM numbers.
ZIM
Inputs
Cash 1314.7
Short-term investments 800.4
Receivables 908.5
Inventories 212.2
Other current assets 25.1
Net PPE 6844
Other long-term assets 68.5
Total liabilities 7346.8
Haircuts applied
Cash 1314.7
Short-term investments 800.4
Receivables at 80 percent 726.8
Inventories at 66 percent 140.1
Other current assets at 50 percent 12.6
PPE at 15 percent 1026.6
Other long-term assets at 10 percent 6.9
Total adjusted assets
4028.1 million
Subtract liabilities
4028.1 minus 7346.8 = about negative 3319 million
Conclusion
Even though ZIM trades below tangible book, it fails the Graham liquidation test. The main reason is that vessels do not hold their book value in a forced sale.
GSL
Inputs
Cash 141.375
Short-term investments 26.15
Receivables 12.843
Inventories 18.905
Other current assets 101.969
Net PPE 1903.274
Other long-term assets 168.729
Total liabilities 909.764
Haircuts applied
Cash 141.38
Short-term investments 26.15
Receivables at 80 percent 10.27
Inventories at 66 percent 12.48
Other current assets at 50 percent 50.98
PPE at 15 percent 285.49
Other long-term assets at 10 percent 16.87
Total adjusted assets
543.62 million
Subtract liabilities
543.62 minus 909.764 = about negative 366 million
Conclusion
Like ZIM, GSL also fails the liquidation test. The discounted value of the fleet is well below the liabilities.
Question 5:
You can lose money buying below liquidation value in a few ways. The assets might not sell for the amounts you assumed. The company might burn cash while you wait. Management might make decisions that reduce asset value. Or the catalyst you are counting on may never show up. Liquidation value is only helpful if the gap eventually closes.
Question 6:
Management matters a lot here. If the business is trading below liquidation value, you need people in charge who will act in a shareholder-friendly way, not ignore the discount. Poor management can waste the margin of safety or drag things out so long that the assets deteriorate. Good management can help the value surface.
Question 7:
For the two companies I looked at, ZIM and GSL, both initially seemed interesting because they were trading below tangible book. That is the type of situation that usually gets attention in a Graham screen. But once I pulled the full QuickFS data and applied the haircut method, both ended up with negative liquidation values. Almost all their book value sits in vessels, and in an actual forced sale those would not come close to book value. So under Graham’s strict liquidation rules, they are not attractive. They might still make sense on earnings power or replacement cost, but not on liquidation value alone.
Question 8:
A helpful AI prompt based on Part 6 would be something like:
“Using the company’s most recent balance sheet, apply conservative Graham-style haircuts to each asset category, remove intangibles, subtract all liabilities, and calculate liquidation value per share. Then explain whether any margin of safety exists. reasoning_effort = high.”
Question 1 :
Book value provides a benchmark of what investors are paying relative to the company’s net assets. “what one is actually getting for his money in terms of tangible resources.”
Limitations :
1. Book value reflects historical costs, not current market values.
2. Intangible assets, brand value, and IP are often understated or ignored.
3. High RoCE companies tend to have higher multiples on book value
Question 2:
Graham emphasizes that even if book value is often not a determining factor, it deserves “at least a fleeting glance” before buying or selling. This aligns with the margin of safety principle: assets provide a cushion against downside risk.
Today, it’s appearing less central but still valuable as a reality check in asset-heavy or distressed contexts.
Question 3:
Grahams approach crisply put is “liabilities are real but asset values on the balance sheet must be questioned”. So liabilities must be taken at their full face value since creditors are entitled to complete repayment before shareholders receive any residual claims, while asset values on the balance sheet require careful scrutiny because their realizable worth in liquidation often diverges significantly from book figures.
Within assets, some adjustments suggested are
• Cash is taken at full value. (taxes ?)
• Receivables are discounted for collection risk. (80%)
• Inventories are marked down to reflect current market quotes with difficulty of sale. (50%)
• Fixed assets & intangibles are heavily discounted, often assumed to realize only a fraction of book value. (20%)
Finally, the current-asset value (cash + receivables + inventories) provides a rough measure of liquidation value. Noncurrent assets often realize enough to offset the shrinkage in current assets.
Question 4:
ONGC (BSE: 500312 ; NSE: ONGC) ONGC is the largest crude oil and natural gas company in India, contributing around 60% Indian domestic production.
• Current Assets
o Cash assets @100%, 1227 @100% = 271
o Receivables @ 80%, 213 @80% = 170
o Inventories @67%, 600 @67% = 402
• Fixed Assets @ 15% 551@15% = 82
• Less current liabilities = 38
• TOTAL VALUE = 887
• Estimated liquidating value per share = 70
• Book value per share = 292
A good example to show the difference because assets are not equally liquid, and forced sales rarely achieve book values. Graham’s thesis: current-asset value provides a rough measure of liquidation value, since noncurrent assets usually make up for the discounts applied to inventories and receivables.
Question 5:
If a company is burning through its cash, receivables, or inventories at a fast pace, the liquidation cushion quickly disappears. Graham warns against issues “losing their current assets at a rapid rate and show no definite signs of ceasing to do so.”. example from book, Hupp Motors lost more than half its cash and over 60% of net current assets during the Depression, meaning its liquidation surplus could soon be dissipated.
Undervalued stocks require some catalyst ideally corporate actions apart from improved earnings, dividends, or industry recovery, without which the discount to liquidation value may persist indefinitely & the investor trapped
Without earnings support, the market may continue to penalize the stock. Graham advises analysts to prefer companies with “satisfactory current earnings and dividends or a high average earning power in the past.”
In short, Poor governance (management fails to unlock assets) , declining industries, or structural disadvantages can prevent value recovery even when assets exceed liabilities
The answer to this question can be summarised as the definition of value traps ?
Question 6:
Unlocking of value for stocks selling below liquidation value which often appear undervalued, but he stressed that their ultimate attractiveness depends heavily on management’s role and shareholder vigilance
For stocks below liquidation value, management can be the catalyst that unlocks value:
• By repurchasing undervalued shares,
• By liquidating or restructuring unprofitable operations,
• By improving transparency and governance,
• Or by distributing excess cash through dividends.
Without such action, undervaluation may persist, and shareholders may never benefit from the apparent margin of safety.
Question 7:
Sunflag Iron & Steel Company Ltd (BSE: 500404 ; NSE: SUNFLAG). The company manufactures sponge iron and pig iron in-house using Direct reduced iron (plant) and mini blast furnace (MBF)
Assuming investments are marketable and realizable, liquidation value is ~₹230 per share—still below the market price (~₹259). This is not a sufficiently large discount by Graham’s standards. Will find another one which has this.
Question 8:
You are an expert in Benjamin Graham’s liquidation methodology. Given the inputs below, produce only numeric calculations and concise numeric outputs (no long commentary). Show each arithmetic step.
Required inputs (fill values):
• Company name / ticker of the stock
Default haircuts (use unless overridden):
• Cash & marketable securities = 100%
• Receivables = 80%
• Inventories = 67%
• Investments (marketable) = 100%
• Investments (unlisted) = 15%
• PP&E & other noncurrent = 15%
Required outputs (numeric, in this order):
1. Current assets after haircuts: list each line and subtotal.
2. Noncurrent assets after haircuts: list investments and PP&E and subtotal.
3. Gross recoverable assets = subtotal1 + subtotal2.
4. Liabilities = input value.
5. Residual equity = Gross recoverable assets − Liabilities.
6. Liquidation value per share = Residual equity ÷ Shares outstanding. If Residual equity ≤ 0, state “0”.
7. Market cap = Shares outstanding × Market price.
8. Discount / premium to liquidation = (Market cap − Residual equity) ÷ Market cap (express as %; if Residual equity ≤ 0, give Market cap ÷ Market cap = 100%).
Question 1:
It's a commonsense business sniff test. With a 'fleeting glance', I can become aware of the value of the tangible assets I'm purchasing. When used in conjunction with the market price, I can gauge whether I'm paying a premium or getting a discount for that value.
Graham acknowledges that the variability in assigned asset value limits book value usefulness as measure of valuation. Fixed assets might be overinflated or overly depreciated, current assets are often overstated, and intangibles may hold little value, no value, or may in fact have substantial value.
Question 2:
Graham says that book value is generally not a useful metric, except in rare cases where an excellent company is trading below its liquidation value--the 'extraordinary or extreme case'. Where there is a credible chance of recovery and a strong margin of safety in hard assets, there could be a bargain.
When this book was written, more companies met this criterion. According to the introduction to Part6, this is not the case today. Companies trading below liquidation value today are less likely to be a 'hidden gem', and more likely to be 'deeply troubled'. They are selling for less than liquidation value for good reason. Additionally, in the case of asset-light companies which are prevalent today, there isn't usually a margin of safety provided by hard assets. The 'extraordinary' case would rarely for these types of companies.
Question 3:
He isn't looking to calculate the exact liquidity, but rather to get a rough idea to determine if shares are selling for less than the stockholder's liquidation portion. He uses Current Asset value minus liabilities and prior claims as a rough measure of liquidity value. For an even more conservative measure, he also looks at Cash Asset value minus liabilities and prior claims.
Question 4:
1) Goodyear tire & Rubber (GT) | P: $7.50 TBV/share: $8.01
Cash: 0.9B
Cash Asset Rough Liquidity Value --- $0.9 - $17 Total Liabilities = -$16.1B
Current Assets: $0.9B + Receivables: $3.2B + Inventory: $4B = = $8.1B
Current Asset Rough Liquidity Value --- $8.1B - $17B Total Liabilities = -$8.9B
No margin of safety if liquidated.
2) ZIM Integrated Shipping Services Ltd. (ZIM) | P: $15.41 TBV/share: $31.44
Cash: $1.7B
Cash Asset Rough Liquidity Value --- $1.7B - $7.1 Total Liabilities = -$5.4B
Current Assets: Cash: $1.7B + Receivables: $0.8B + Inventory: $0.2B = = $2.7B
Current Asset Rough Liquidity Value --- $2.7B - $7.1B Total Liabilities = -$4.1B
No margin of safety if liquidated.
Question 5:
Loss may occur if the thesis for recovery does not pan out and earnings continue to fall. If the odds are remote for needed policy changes, acquisition by a stronger company, or liquidation, recovery will be difficult. If the company has not demonstrated strong average earnings in the past, this would be an unwise investment. Additionally, timing is key; buying when the market is overvalued can result in even greater losses for weaker companies, while buying when the market is undervalued risks missing out on higher-quality operations that are just as affordable and likely a safer, better investment.
Question 6:
Alignment of interest is uber important because their actions and recommendations directly influence the chance of recovery. Will management address inefficient or overly aggressive use of assets that may have increased earnings? Will they consider new ownership or mergers to optimize asset utilization? If all else fails, would they accept reality and liquidate, prioritizing the financial well-being of debt and equity holders, even at the loss of their own jobs? If there is trust in the management to make these potentially unpopular decisions, they may not be depended on to assist in the turnaround.
Question 7:
I did not find anything in my search that would qualify. The one I found that met the quantitative metrics but fails on the qualitative. At best I think Grahm would label it a speculative 'bargain' and doubt he'd be satisfied with.
Performance Shipping Inc.(PSHG)
CAV - TL = rough liquidation
$100M - $51M = $49M
$49M/12.43M shares Out = $3.94 liquidation value per share
Current price: $2.19
Discount to liquidation value: ~50%
Qualitative Concern: risk of oversupply, share dilution pattern, management concerns, resistance to credible take over that could benefit shareholder, operational risks and industry volatility, very low chance of liquidation
Question 8:
I ran something like this in two part to help with the questions.
1) Test a list of tickers I gathered that are trading at P/TBV < 1 and see if liquidation value was positive.
2) Deeper analysis into potential recovery story and risks.
Prompt 1: Speed benefit, but I still went backed and checked the numbers because it doesn't always grab them correctly.
Role: You are a security analyst applying Benjamin Graham’s framework from *Security Analysis* part 6 to check the liquidation value of a stock trading below TBV.
Input:
• TIKR List: [LIST_OF_TIKRS_TO_TEST]
Task: For each TIKR listed, run the following:
1. Fetch latest balance sheet
2. Calculate Rough estimate of Liquidation Value Calculation
a) Current Asset Value – Total Liabilities
b) Cash Asset Value – Total Liabilities
3. Output 'possible bargain' if either output is positive; otherwise flag as unwise
Prompt 2: Worked fine in Smart(gpt5) in copilot to give brief overview and flagged enough issues that I didn't feel the need to do Deep Research
Role: You are a security analyst applying Benjamin Graham’s framework from *Security Analysis* part 6 to analyze the investment merits of a stock selling below TBV: INPUT_TIKR
Input:
- Fetch most recent financials, 10K and available earnings call transcripts for notes on asset quality, management, and earnings history:
Task:
1. **Liquidation Value Calculation**
- Compute two rough liquidation values:
a) Current Asset Value – Total Liabilities
b) Cash Asset Value – Total Liabilities
2. **Valuation Comparison**
- Compare the company’s current market capitalization to both liquidation values.
- Determine whether the stock trades at a sufficiently large discount to liquidation value to qualify as an “extraordinary case” Graham would consider attractive.
- Discuss risks: why a company might trade below liquidation value (e.g., structural decline, poor management, lack of average earning power).
- Evaluate management’s role: is there evidence they would act rationally to preserve or unlock value?
- Is there a possibility of merger or acquisition that could revitalize it?
- Note probability of liquidation if company cannot reverse falling earnings based on historical attitude and behavior of management and stockholders towards company.
3. **Conclusion**
- Provide a clear judgement: Is this stock a potential Graham-style bargain, or is it more likely a “deeply troubled” company selling below liquidation value for good reason?
- Frame the conclusion in terms of Graham’s margin of safety principle.
Output should be structured as:
- Step 1: Liquidation Value Estimates
- Step 2: Market Price vs. Liquidation Value
- Step 3: Graham-style Attractiveness Assessment
Interesting prompt, thank you for sharing
I was a bit under the weather last week so I couldn’t really make heads or tails of what I was reading. But I’m jumping back in it this week.
1. Book value access as a metric for the amount of capital invested in the business. It’s value highlights what assets are being purchased (at what discount or premium) rather than the income statement which highlights the earnings being purchased. One of the main limitations that comes to mind in a modern context is that there are asset light businesses they can do very well for their investors that aren’t captured well by the values expressed on the balance sheet.
2. It’s of practical use when you can find a company whose market cap is below liquidation value. Especially if it’s trading below cash. In a modern context, I think that’s a lot harder to find outside of a depression era downturn. Maybe during the financial crisis it would have been possible to find more of these types of companies. Granted, I haven’t spent an excessive amount of time looking for this type. Partially because I think that markets have become substantially more efficient than they were during Graham‘s time. If for no other reason than the speed by which information is dispersed, it makes it highly unlikely that a company would trade at that level for very long at all. But if one did find a company trading at that level, there’s probably a good reason for it these days
3. Take 100% of the cash, about 80% of the receivables less usual reserves, about 2/3 of the inventories at the lower of cost or market and add those three with fixed and miscellaneous assets at roughly 15% of their carrying value. Add them up then subtract all liabilities and you have liquidation value.
4. CSIQ - I used their Q3 2025 balance sheet figures for the nine months preceding. With the adjustments to all of the assets, after subtracting all liabilities, I got a negative $5.3B. The adjustments seemed pretty harsh, but I did the work pretty quickly because earnings were just released this morning. This company has been doing a heck of a lot of investment over the past 18 months, it’s probably one of the companies I know best so while this doesn’t pass Graham checklist, I’m still OK with it.
MED - same thing Q3 2025. This one came out to a positive $121M. While I don’t know this company as well as CSIQ. I think that MED falls into the trap category, because their cash burn is pretty intense for a historically profitable company. This segways right into the next question.
5. The company may continue to trade below liquidation value when management is taking no actions to “unlock“ this value. It’s also possible that the company may be in a state of decay like the original textile business of Berkshire Hathaway. This leads very well into the next question.
6. In the case of MED, we could see the importance of management, because arguably this company should be liquidated and assets should be dispersed to shareholders. But even then the market cap of the company is trading at 125, million so management would need to realize values higher than Graham’s percentages in order to provide a net gain to stockholders. The question is would management be willing to give up their salary to liquidate their company for their shareholders?
7. I’d have to spend a lot of time in front of the screen sifting through companies to find one. I can pretty much assure that none of the companies that I follow closely would fulfill the parameters. My watchlist is very much inspired by Thomas Phelps 100 to one of the stock market, so let’s just say I have room to grow finding net-nets.
Glad you are feeling better
1. The importance was to show the value of a business, but some numbers may not truly reflect items such as replacement costs therefore not reflect the value of the business. The difference being how much could the business be sold for as opposed to a mathematical calculation.
2. Useful information that can be found on the balance sheet are: how much capital is invested in the business, the ease or stringency of the company's financial condition, details of the capitalization structure, an important check on the validity of reported earnings, and the basis for analyzing sources of income. Arbitrary amounts may be used in different categories and not properly used. The value of assets may not represent the true cost of replacement. Old style book value can be a starting place, but needs to be edited to represent the current state of the company and the economy.
3. Liquidation value is the money that the owners could get out of it if they wanted to give it up. This value is more likely to be more accurate in the private sector than the public sector. This can be due to many reasons such as the character of the assets and the nature of the claim of the liabilities.
4. Liquidation value = Current Assets (less reserves) and adjusted for their character - Liabilities at face value
5. When a company sells persistently below its liquidating value, then either the price is too low or the company should be liquidated. The price below liquidating value of unjustifiable. This is a sign of bad management and/or changing economic environments.
6. The responsibility of management is to act in the interest of their shareholders including the obligation to prevent the establishment of absurdly high or low prices for their securities. Liquidating value should represent the lowest value of a stock. If a stock sells below the liquidation value, the management should seek to understand why and take correcting steps. They should also look at the direction of dividends, and return to stockholders any cash that is not needed in the business. Market price should be governed by earnings, whereas liquidation value depends on asset valuation.
7. NA
8. What has been the 20 year direction of earnings as compared to the 20 year direction of asset value.
Question 1: What are the useful features of using book value as a valuation metric? What are its limitations?
The asset value is audited, which means that it is produced by accountants, who have 4 important principles: conservative, consistent, accruals (matching) and going concern. Graham implicitly picks up on this, though he does not trust it overmuch, saying "Asset value is unreliable" and going on to say plant valuation is basically worthless. He recognizes the importance of "going concern" saying "The analyst cannot calculate accurately the liquidating vale of a given company, since it is ordinarily impossible to estimate what could actually be realized for it fixed assets and what the expenses of the liquidations would be."
Question 2: When does Graham believe book value to be of practical use to the security analyst? What do you think about that in the modern context?
In most cases Graham thinks that it is the earnings power that is important, not the asset values, as covered in previous sessions. However under circumstances where the asset value is significantly higher than the market value it can become useful. In particular when the value of the company is less than the net working capital, and the earnings are still positive. He identifies this as one of the best investment opportunities of all. this is still true, but rare in the modern world, and must be applied with caution where the value lies elsewhere: biotechs, tech, companies which are trying to generate intellectual capital.
Question 3: Describe how Graham approaches calculating a company’s liquidation value.
He says that the net working capital can be turned into cash reasonably efficiently. "As a general rule, at least enough can be realized from the plant account and the miscellaneous assets to offset any shrinkage sustained in the process of turning the current assets into cash." By using this figure as the "minimum liquidating value" of net working capital less total debt, we establish a floor for valuation of the assets with a good margin of safety.
Question 4: Perform Graham’s liquidation analysis for two stocks trading below tangible book value and show all work/assumptions.
IG group.
March 2025 year end figures:
Current assets: $397,993
Total liabilities: $273,447
NCAV $124,546
Current Market cap £46.2
convert to USD $61.0
Looks OK at 50% and maybe a candidate for a play.
Reading the update in October 25, its net cash position changed by -$33M. Net cash position $2M. Ouch. The liquidation of the US branch clearly cost a fortune, and eroded a large part of the cushion in 6 months. They report tough trading in Europe. The CEO walked the plank. in Dec we will see the full carnage. Will I be buying these? I think not.
Portmeirion Group PLC
Final results 31 December 2024
Current Assets: £70,179
Total liabilities: £46,825
NCAV £23,354
Market cap: £14,200
2/3 margin of safety, and it was only a little higher when these results were announced, and they just scraped a profit in 2024. In principle a good candidate for a Graham style buy. I'm amazed I found one, but I can't say I like it as a prospect.
Interim results, 30 June 2025
US tariffs affected sales, clearly tough trading conditions. They give no guidance for the outturn of the second half.
Their bank has changed the terms of its credit, with interest margin up from 1.8% to 3%. A very bad sign.
Dividend cancelled, in my opinion they should not have paid one last year, as it was in their words disappointing.
Onshoring production to the UK. This will probably increase costs, and they don't comment on this aspect.
That is 3 management errors/omissions/evasions on a cursory inspection. Do I trust this management to turn round an aging business, in an unfashionable consumer sector, in a high cost production country? No. Stoke on Trent used to be the powerhouse of the ceramic industry in the industrial revolution, and it lives largely on this heritage. Its decline has been very long term, and even well run businesses like Churchill China have struggled to compete in the modern world.
Question 5: What are some ways in which you can lose money by investing in a stock below its liquidation value?
Many, many, many:
1) liquidation estimate of value too high: sometimes things are sold for a song, far lower than expected, or seems reasonable: even assets that are very tangible, like property, can realise far less than expected.
2) It can take a very long time to liquidate a complex company. LCTM which went bust in 1998 took decades to liquidate, and I once received a check from a supplier who had gone bust nearly 30 years previously, and had a land asset that was eventually sold.
3) Dilution, capital raises, or sale of the whole for very little.
4) Expenses of liquidation can eat up the margin of safety. Legal fees, liquidators fees, surveyors fees, banking fees, and the listing fees, are all substantial, and accumulate over the often protracted process.
Question 6: What is the importance of management when considering stocks that are selling below their liquidation value?
Management quality and probity is crucial here, and the incentives are all wrong. It is a hard, slow, unglamorous and not very career advancing job to liquidate a company. The records are public, and you have to declare you have been involved, often, and explain what happened for ever after. Many institutions will use it as an instant "black ball". Those who have a bright future will usually find a reason to leave, often as early as they can. So only people with no other options remain to do this, and the are often in the business of exchanging a broken reputation for a financial pay out as their last career move. The disposing of assets, often under time duress, presents perfect opportunities for "commissions", "consultancy fees", "side letters of arrangement", or "future job offers". Call them what you like, but the effect is paying the management (out of sight) to make a favorable decision to the buyer of the assets, rather than to the shareholders.
This is the reason that I believe that investors should on the whole steer clear, it really is much more risky than it seems at first glance, especially for smaller enterprises with complex assets.
There are managers who are brought into situations like this: sold as "turn round specialists", and some are excellent and can do an amazing job. But assessing them on appointment is difficult. The old adage, that when a management with a great reputation take over a company with a poor reputation it is usually the companies' reputation that wins, is true often enough, that a wait-and-see policy is best. It is better therefore, to watch the progress, and the share price over the next 12-18 months, even if it means giving up some early gains.
Question 7: Can you find a company that is currently trading at a sufficiently large discount to its liquidation value that if Graham were looking at it today, he would find it an attractive investment? If you can, show your work for why it’s attractive and justify your assumptions.
Put shortly, No. I use Sharescope which allows me to filter by NCAV, and I listed all the UK companies on it. Eliminating special cases like property companies, and various investment trusts and VCs, which don't really qualify as the assets are anything but liquid, I combed through the whole list. It is full of companies that have very good reason for their poor valuations. I'm absolutely certain that Graham would have enough sense not to buy them. For example:
Walker Crips Group PLC
Final results 31 March 2025
Current Assets: £45,800
Total liabilities: £36,700
NCAV £9,056
Market cap: £3,200
Big margin of safety, Market cap 1/3 of NAV. Modest profit on the year.
However:
They avoided a loss by using an exceptional gain - basically they made a right mess in a previous year, and reversed out a 3.8M provision in this year. quoted as "an internal control failure resulted in possible customer detriment"
ignoring this they made a loss of about 3.6M.
There has been a series of resignations from the board in 2025, including the CFO, the Chairman and 2 non execs. All of these are responsible for keeping an eye on the Chief Executive, and making sure things are above board. Clearly they don't like what they see. See my comments in the answer to question 6.
On paper this looks like a good candidate. In practice I would not touch it.
Question 8: Can you think of a useful AI prompt based on the material in part 6?
I found this simple one worked fine:
"Perform Graham’s liquidation analysis for [Company]. Show work and assumptions."
I used the new ChatGPT 5.1. Seems to think harder, and produces a good workmanlike output. Much more detailed than mine, but it applied haircuts to some of the assets, which seemed both arbitrary and overly savage. I could not find reference to them in my copy of Benjamin Graham.
#1: Ideally, book value anchors valuation in fact, not forecast. It measures the tangible capital behind a share and (should) offer a margin of safety when prices fall below that base. However, by the time you see a book value, it’s already old and dated - it captures the past, not earning power. A business is worth what its assets can produce in the future, not just what they cost in the past. At best, book value protects the investor by giving them a valuation floor, but it rarely tells the whole story.
#2: Graham saw book value as useful when it bore a close relation to realizable value - in asset-heavy firms where liquidation or replacement cost mattered more than growth. It guided analysis when markets priced stocks below net tangible worth, offering an objective margin of safety.
#3: Graham estimated liquidation value by marking assets to what they’d fetch in a real sale—cash at par, receivables discounted, inventory and equipment sharply reduced—then subtracting all liabilities. The result was a conservative floor beneath intrinsic value, showing what investors might recover if the business ended tomorrow.
#4: Only had time to find 1:
Medifast ($MED)
Cash & Short-Term Equivalents = $173.5M
Inventory = $23.2M * 50% = $11.6M
Fixed & Intangibles ~$60M * 15% = $8M
Liquidation Value of Assets ~ $193.1M
Minus All Liabilities = $53.5M
Liquidation Value = $139.6M
Current Market Cap = $119.5M
#5: Management! The C-Suite and BOD rarely wants to give up their sweet gigs. A company trading below its breakup value may never liquidate – it may just dwindle to zero. Managers are excellent at wasting capital, issuing dilutive shares, or burning assets in order to justify their salaries. Accounting values can mislead. Recent bankruptcies of First Brands and Renovo are timely examples.
#6: See #5. Management MUST be incentivized via shares/stock options in order to want to maximize shareholder value in these types of situations. Otherwise, they’ll just want to collect their paycheck until everything is gone.
#7: See #5 about $MED (Medifast). Although its future seems dubious, the valuation floor could be reasonable and the company ekes out some cashflow.
#8: I had a hard time using ChatGPT to find non-financial companies that fit the criteria, actually...
I used to own Medifast a long time ago, before GLP-1s came on the scene. Amazing how a business that seemed (to me) at the time to be fairly predictable quickly got disrupted by a drug that came out of left field.
Separately, if I were to pursue MED as a potential net-net, the first question I would investigate is whether management is actually likely to liquidate or if they would rather reinvest the cash into a risky bet to revive the business.
Busy work week. Here is my homework for this week.
1) For capital heavy firms it helps to understand the unit economics of the business and understand if it’s a structurally favorable industry, as well as determine the ease at which another player could try to compete. I think book value is mostly useless as it uses historical costs and management estimates.
1) Book value may be useful in capital intensive industries to gauge unit economics and barriers to entry- it shows how hard it would be for competitors to replicate the business and whether the firm earns strong returns on its invested capital. Beyond this, as it relies on historical costs and management estimates, it can mostly be ignored.
2) Useful to Graham when a stock sold for below its liquidation/book value. In a modern context it could be useful in a distressed/liquidation scenario possibly or in highly regulated rent-seeking industries where government capture
3) Boils down to over-discount everything. If the number still looks good, the investment may be attractive.
4) Danaos (DAC)
Balance Sheet from Jun 30, 2025
ASSETS
Cash & equivalents: $546.16M
Short-term investments: $107.92M
Receivables: $67.69M
Inventory: $21.62M
Prepaid expenses: $4.94M
Other current assets: $59.11M
Total current assets: $807.44M
LIABILITIES
Total current liabilities: $150.72M
Total liabilities (current + long-term): $928.61M
ADJUSTMENTS TO ASSETS
Cash & equiv = 546.16 × 100% = 546.16
Short-term investments = 107.92 × 100% = 107.92
Receivables = 67.69 × 85% ≈ 57.54
Inventory = 21.62 × 50% ≈ 10.81
Prepaid + other current = (4.94 + 59.11) × 0% = 0
Adjusted current assets ≈ 546.16 + 107.92 + 57.54 + 10.81 = 722.43M
Liquidation NCAV=722.43−150.72=571.71 M
Gets us to NVAV per share = 571.71/18.31 = $31.22
Compare to the price is 93.70 which is about 3x
Next we need to add in the ships back
PP&E: 3,285M
If we say you can recover 25% of this it would be roughly 821.25M
Adjusted NCAV = 571.71 + 821.25 = 1,392.96M
Brings us to a NCAV per share of $76.08
SUMMARY: The liquidation of the assets would result in proceeds less than the current selling price and well below the tangible book value. If we changed our assumptions and could collect 50% or 75% of the liquidation of the ships, this would change the math significantly.
5) Liquidation value estimate wrong. Hidden liabilities. Fraud. Management refusal to liquidate.
6) Management decides if liquidation happens. Management controls whether assets are protected or destroyed. Capital Allocation decisions are all management.
7) Mishtann Foods Ltd (BSE: 539594, “MISHTANN”) – India
Screening for
Market Cap ≤ ⅔ × Net Current Asset Value (NCAV)
where NCAV = Current Assets − Total Liabilities
Business: FMCG player focused on basmati rice, salts and other agro products.
Current price: ₹5.03 per share (close, 14 Nov 2025).
Market cap: about ₹542 crore.
Book value per share: ~₹10.9; stock trades at about 0.47× book.
Recent profitability: TTM net profit ~₹335 crore with ROE ~44%.
Red-flag-ish working capital: debtor days ~307; working-capital days have risen sharply.
So it’s a hyper-profitable, very cheap-looking FMCG stock… if the accounting is real and receivables are good.
From a simple net-net screen on Screener, the consolidated current assets and balance sheet snapshot (as of Sep 2025) are approximately:
Current assets (CA): ₹1,874.32 crore
Total assets (TA): ₹1,882.94 crore
Reserves (R): ₹1,061.55 crore
Equity share capital (E): ₹107.82 crore
In Indian financial statements, Total assets = Equity + Total liabilities. So:
Total liabilities 713.57 crore
NVAV = 1160,75 crore
Shares = market cap / price = 1.08 billion shares
NCAV per share is 1,160.75/1.08 billion = 10.8 per share
Compare that to the price of 5.08 and liquidation value is 2x
If assumptions regarding liquidation value are correct there is possibly a Graham style liquidation possibility for this company. Management buy in is another story altogether.
8) Analyze this company as if you were Benjamin Graham evaluating a stock selling below liquidation value. Go beyond the NCAV math and rigorously assess the quality and collectability of receivables, the realism of inventory values, signs of balance-sheet inflation, deterioration in working-capital cycles, and any red flags in accounting practices or auditor comments. Evaluate management integrity, insider behavior, governance risks, and the likelihood that management will protect rather than destroy liquidation value. Judge the probability of a catalyst for value realization versus long-term value decay, and assess business-model fragility or competitive pressures that could erode asset values. Conclude with a clear verdict on whether Graham would invest, size minimally, or reject the stock entirely, explaining why.
Question 1: Book value is useful as a valuation metric because it provides a baseline measure of a company’s net tangible assets, helping investors understand what they are paying for relative to the company’s resources. Comparing book value to market value can indicate whether a company is trading at a premium (suggesting it earns above-average returns on assets) or at a discount (possibly due to weak profitability or undervaluation). Limitations of book value include that it may not accurately reflect the true economic value of assets, since accounting standards can cause discrepancies between reported book values and market realities. Intangible assets, brand value, and future growth potential are also typically excluded, making book value less informative for companies with significant intangible or high-growth assets.
Question 2: Graham suggests book value “deserves at least a fleeting glance” (pg 557, 6th ed.) not as the sole valuation decision but to better understand the nature of what one is buying on a tangible asset basis. I think this is insightful and continued divergence from how I initially took Graham’s attitude face towards investing (e.g. his commonly referenced net-nets). In a modern sense, this doesn’t preclude investors from a universe of asset-light business models (e.g. software or service based models) but more just forces them to understand the nature of their investment better.
Question 3: Graham estimates liquidation value by applying conservative haircuts to each asset category based on what he believes could realistically be recovered in a liquidation. He assumes cash is worth 100%, accounts receivable are discounted for doubtful collections, inventories are marked down heavily (often to ~60% of book), and fixed assets are assigned very low or zero recovery unless they have clear resale value. He then subtracts all liabilities at face value.
Question 4: Perform Graham’s liquidation analysis for two stocks trading below tangible book value and show all work/assumptions.
Company 1: Kraft Heinz
Accounting value / Adj. / Adjusted Value
Net Cash -$38,002 100% -$38,002
Accounts Receivable $2,255 90% $2,030 (Assuming credit worthy customers)
Inventory $3,530 50% $1,770 (Weighted based on sales mix and product nature)
Prepaid Expenses $281 10% $28
Restricted Cash $32 0% $0 (Not clearly disclosed)
Other Current Assets $756 0% $0 (Not clearly disclosed)
Net Property, Plant & Equipment $7,144 20% $1,429
Goodwill $22,167 0% $0 (Goodwill is 0% in liquidation: DCF-based carrying values don’t matter without a going concern, and CPG history — including Kraft Heinz’s own write-downs — shows buyers pay for brands and tangibles, not goodwill.)
Other Intangibles $37,545 5% $2,063 (Brand cushions are thin — ~40% near impairment and only ~6% strong — so brands and trademarks receive minimal liquidation value, and customer relationships are assigned 0%.)
Other Long-Term Assets $4,851 0% $0
Liquidation value -$30,683
Shares O/S 1,184
Liquidating value per share -$0.04
Company 2: Acacia Research Corporation
Accounting value / Adj. / Adj. Value
Cash And Cash Equivalents $301,780
Total Liabilities Net Minority Interest $192,033 100% $192,033
Net Cash $109,747 100% $109,747
Other Short Term Investments $63,943 100% $63,943 (Short-term investments are Treasury bills and AAA money-market funds; these are cash equivalents and are assumed to recover at 100% in liquidation.)
Accounts receivable $27,141 85% $23,070 (AR at 85% to reflect higher small-company collection risk.)
Loans receivable $3,392 25% $848 (Loans backed by Bitcoin are discounted to 25% of face value to reflect collateral volatility, enforcement risk, and poor forced-sale recoveries)
Inventories $26,490 30% $7,947 (Inventory marked to 30% of book due to mix of industrial electronics, drilling supplies, plastics manufacturing, and high obsolescence/low resale value in liquidation.)
Other Current Assets $17,891 5% $895 (Patent and enforcement rights recorded in Other Current Assets are assigned minimal recovery value (0–10%) given their specialized nature and limited resale market in a liquidation scenario.)
Net PPE $222,708 45% $100,219 (PPE is valued at ~45% of net book value in liquidation, reflecting typical auction recoveries: machinery and equipment sold at ~20% of cost, vehicles at ~50%, computer hardware at ~5–10%, office furnishings at ~5%, buildings at ~40%, and land at 100%)
Goodwill $25,695 0% $0
Other Intangible Assets $55,458 5% $2,773 (Intangible assets (patents, customer relationships, trademarks, developed technology, and favorable leases; $55M NBV) are assigned minimal liquidation value (0–5%) given their specialized nature, lack of standalone marketability, and dependence on continued operations)
Non Current Deferred Taxes Assets $16,939 0% $0
Other Non Current Assets $7,434 100% $7,434
Liquidation Value $316,875
Shares O/S 96,460.38
Liquidation Value per Share $3.29
Question 5: Analysts have to make sure the company isn’t bleeding assets. If it’s losing cash or writing down inventory, receivables, or PPE, there may be nothing left to liquidate. The business should also have shown real earning power at some point. Graham emphasizes that you need a “fairly imminent prospect” of a favorable development—industry recovery, M&A, policy changes, or an actual liquidation—for the market to close the gap. Without that, the discount can linger. Market conditions matter too: when valuations are very high, these thin, weak names can collapse faster in a downturn; when very low, better businesses become available at similar prices. In short, if assets deteriorate, catalysts never show up, or broader markets move against you, you can still lose money even when buying below liquidation value.
Question 6: Management matters because their incentives often run counter to liquidation. Even if the business is worth more dead than alive, managers are motivated by compensation, job security, scale, and prestige — all of which depend on keeping the company operating and growing. They control information and capital allocation, and they may prefer reinvestment over payouts or asset sales. In short, without management aligned to shareholders, a full liquidation — or any value-unlocking action — may never happen, even when the stock trades below liquidation value.
Question 7: Weyerhaeuser’s underlying asset value offers a margin of safety, especially in today’s cyclical downturn. Using a Graham-style liquidation framework and recent timberland transactions, the company’s 9.245 million acres carry an estimated value of $23.5B — based on $2,000/acre for its 6.7M Southern acres and $4,000/acre for its 2.5M Western acres. Both assumptions sit below recent disclosed comps (Southern ~$2.8k/acre; Northwest ~$7.5k/acre), reinforcing the conservatism. Applying haircuts to the remainder of the balance sheet — receivables (85%), inventories (60%), mills and equipment (50%), construction-in-progress (50%), and zero to prepaid and other assets — produces roughly $26.0B in gross liquidation value. After subtracting $7.2B in liabilities, the net liquidation value is about $18.8B, versus a current market cap of $15.6B, implying a ~20% discount to conservative liquidation value. That discount is primarily cyclical. Lumber prices are soft and the market is pessimistic on housing starts. None of that reflects impairment to the underlying assets. Weyerhaeuser is one of North America’s dominant timber REITs and a leading wood products operator, with nearly 125 years in business across multiple housing cycles. Timberland itself grows biologically regardless of the macro backdrop, adding further downside protection. In Graham’s terms, this leans towards a profile her favored: hard assets marked down by temporary cyclicality, durable long-term earning power, and a current price sitting below liquidation value, with a natural catalyst tied to eventual normalization in the housing and lumber cycle.
Question 8: “Analyze the following company as Benjamin Graham would in Part 6 of Security Analysis (Balance-Sheet Analysis). Focus only on tangible assets, conservatively adjusted. Provide step-by-step calculations. Structure the output as follows:
1. Book Value Assessment What is the company’s current book value and tangible book value? Does the relationship between market value and book value tell me anything about returns on assets, business quality, or market pessimism?
2. When Book Value is Actually Useful Based on the nature of the business (asset-heavy, asset-light, commodity, industrial, software, etc.), is book value a meaningful anchor? If not, explain why and identify what other baseline metric should be used.
3. Liquidation Analysis (Graham Haircuts) Use Graham-style conservative assumptions: Cash = 100% Marketable securities = 100% (unless risky) Receivables = 70–90% depending on customer quality Inventory = 20–60% depending on obsolescence and resale PPE = auction value (typically 10–50% of net book) Land = 100%+ if easily marketable Loans receivable = haircut based on collateral quality Other current assets = 0–10% Goodwill = 0% Intangibles = 0–5% unless legally transferable IP with clear resale Deferred tax assets = 0% Other long-term assets = assign conservatively Subtract all liabilities at 100%. Provide liquidation value per share.
4. Catalysts & Risks (Why a ‘Cheap’ Stock Can Still Lose Money) Is the company losing assets, burning cash, or writing down inventory/PPE? Are there “fairly imminent prospects” of value-unlocking events (industry recovery, M&A, policy change, asset sale)? Does the current market environment help or hurt bargain issues? Is this potentially a trap?
5. Management Incentives Are management incentives aligned with liquidation, asset sales, or capital returns? Or are their incentives tied to empire-building, compensation, and continued operations? Does this reduce the probability that liquidation value is realized?
6. Is This a Graham-Style Bargain? Does the discount to liquidation value exceed 30%? Are the assets stable (e.g., land, timber, cash, inventory)? Is the business cyclical but not structurally impaired? Provide a binary yes/no as well as a reasoned conclusion.
7. Summary of Investment Case One paragraph summarizing: whether the stock is attractive, the margin of safety, the factors that could close the valuation gap, the main reasons to avoid it if not attractive. Return the analysis in a structured, numeric format so that it can be compared across companies.”