Overvalued assets on the left side of the balance sheet are especially treacherous when there’s a lot of debt on the right. Let’s say that a company shows $400 million in assets and $300 million in debts, resulting in a positive book value of $100 million. You know the debt part is a real number. But if the $400 million in assets will bring only $200 million in a bankruptcy sale, then the actual book value is a negative $100 million. The company is less than worthless.
