top of page
  • Writer's pictureFaron

Sum-of-the-Parts Valuation – SOTP

What Is the Sum-of-the-Parts Valuation – SOTP?

The sum-of-the-parts valuation (SOTP) is a process of valuing a company by determining what its aggregate divisions would be worth if they were spun off or acquired by another company.


The valuation provides a range of values for a company's equity by aggregating the standalone value of each of its business units and arriving at a single total enterprise value (TEV). The equity value is then derived by adjusting the company's net debt and other non-operating assets and expenses.


How to Calculate Sum-of-the-Parts Valuation – SOTP

The value of each business unit or segment is derived separately and can be determined by any number of analysis methods. For example, discounted cash flow (DCF) valuations, asset-based valuations and multiples valuations using revenue, operating profit or profit margins are methods utilized to value a business segment.


What Does the SOTP Tell You?

Sum-of-the-parts valuation, also known as breakup value analysis, helps a company understand its true value. For example, you might hear that a young technology company is "worth more than the sum of its parts," meaning the value of the company's divisions could be worth more if they were sold to other companies.


In situations such as this one, larger companies have the ability to take advantage of synergies and economies of scale unavailable to smaller companies, enabling them to maximize a division's profitability and unlock unrealized value.


The SOTP valuation is most commonly used to value a company comprised of business units in different industries since valuation methods differ across industries depending on the nature of revenue. It is possible to use this valuation to defend against a hostile takeover by proving the company is worth more as a sum of its parts. It is also possible to use this valuation in situations where a company is being revalued after a restructuring.

4 views0 comments

Recent Posts

See All

投资常客相信都明白什么是股票周息率(Dividend Yield),但对于新手来说,这是你必须了解的,不然即使领了钱也不知道钱是从哪里来。 周息率被称为现金股利、配息或分红,一般指上司公司将上一年度的部分获利,以现金或红股形式派发给股东,作为投资收益和回馈股东。周息率是个浮动数字,会随着每日股价的起落,以及派息的增减而有所变动。 这也是常见的股票估值的方法之一,周息率较高的公司一般都是规模和现金流

bottom of page