Question

It is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market values? Why or why not?

I thought that it would not happen since market value is the price that equity, liabilities, and assets can be bought and sold and thus equity can't be a negative value.

Answer 1

Yes. A company's liabilities may exceed its assets. This is particularly true of a start-up company. However, some long-established companies also have more liabilities than assets. Generally, in this situation, a company's market value goes down -- and eventually may disappear.

Answer 2

Thanks for the help.
-Sarah