Definition
Sum-of-parts (SOTP) valuation values each business segment or asset separately, then adds them together. It's used for conglomerates or companies with distinct divisions that might be worth more separately than combined. If SOTP exceeds market cap, the stock may be undervalued or a breakup candidate.
Formula
SOTP Value = Σ(Value of Each Segment) + Cash - Debt
Example
A conglomerate's media division is worth $20B, retail $15B, plus $5B cash minus $10B debt. SOTP is $30B vs. $25B market cap.
FAQ
What is Sum-of-Parts Valuation?
Valuing a company by adding up the value of its separate businesses.
How do you calculate Sum-of-Parts Valuation?
A common formula for Sum-of-Parts Valuation is: SOTP Value = Σ(Value of Each Segment) + Cash - Debt
Why is Sum-of-Parts Valuation important?
Sum-of-Parts Valuation helps investors evaluate valuation and make more informed decisions.