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Sum-of-the-Parts (SOTP) Valuation Calculator

Value a company using Sum-of-the-Parts (SOTP) method by valuing each business segment separately and summing those values.

Sum-of-the-Parts (SOTP) Valuation Calculator

Value a company using Sum-of-the-Parts (SOTP) method by valuing each business segment separately and summing those values.

Input your SOTP valuation components

Typically 5-20%

Formula

Total Segment Value = Sum of All Segment Values

Net Debt = Total Debt - Cash and Cash Equivalents

SOTP Enterprise Value = Total Segment Value - Net Debt + Non-Operating Assets - Non-Operating Liabilities

After Conglomerate Discount = SOTP Enterprise Value * (1 - Discount %)

Equity Value = SOTP Enterprise Value (after adjustments)

Sum-of-the-Parts (SOTP) valuation values a company by valuing each business segment separately using appropriate methods (DCF, multiples, etc.) and summing those values. Net debt is subtracted and non-operating items are adjusted to arrive at enterprise value. A conglomerate discount may be applied to reflect the complexities of managing diverse business units.

Steps

  • Enter values for each business segment (optional, enter at least one).
  • Enter total debt and cash & cash equivalents.
  • Optionally enter non-operating assets and liabilities.
  • Optionally enter conglomerate discount percentage.
  • Review SOTP valuation calculation.

Additional calculations

Enter your SOTP valuation components to see additional insights.

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The Complete Guide to Sum-of-the-Parts (SOTP) Valuation: Segment-Based Company Valuation

A comprehensive look at Sum-of-the-Parts (SOTP) valuation, valuing each business segment separately and summing those values to estimate total company value.

Table of Contents: Jump to a Section

Understanding SOTP Valuation

SOTP valuation values a company by valuing each business segment separately using appropriate methods and summing those values.

Segment Valuation

Value each segment using methods appropriate to that segment: DCF, multiples, asset-based, or other methods.

SOTP Calculation

SOTP EV = Sum(Segments) - Net Debt + Non-Operating Assets - Non-Operating Liabilities

Conglomerate Discount

Conglomerate discount (typically 5-20%) may be applied to account for complexities of managing diverse business units.

Practical Application

Use SOTP for diversified companies, conglomerates, or when segments have different valuation characteristics.

Conclusion

Sum-of-the-Parts (SOTP) valuation provides a segment-based approach to company valuation, allowing analysts to value each business segment separately using appropriate methods and sum those values. This approach is particularly useful for diversified companies or conglomerates where different segments have different growth, profitability, or valuation characteristics. Proper segment valuation and appropriate application of conglomerate discounts are essential for accurate SOTP valuations.

FAQs

What is Sum-of-the-Parts (SOTP) valuation?

Sum-of-the-Parts (SOTP) valuation values a company by valuing each business segment separately and summing those values. This approach is particularly useful for conglomerates or diversified companies operating in multiple industries, as it allows segment-specific valuation methods and multiples.

How is SOTP valuation calculated?

SOTP Enterprise Value = Sum of Segment Values - Net Debt + Non-Operating Assets - Non-Operating Liabilities. Net Debt = Total Debt - Cash and Cash Equivalents. Equity Value = Enterprise Value after applying any conglomerate discount. Each segment is valued using appropriate methods (DCF, multiples, etc.).

How do I value each business segment?

Value each segment using methods appropriate to that segment: DCF for segments with predictable cash flows, comparable company multiples for segments with good comparables, precedent transactions for segments being sold, asset-based valuation for asset-heavy segments, or sum of segment parts for segments with subsidiaries.

What is a conglomerate discount?

Conglomerate discount is a reduction applied to the sum of segment values to account for the complexities and potential inefficiencies of managing diverse business units. It typically ranges from 5-20% and reflects factors like management complexity, lack of focus, and market preference for pure-play companies.

How do I handle net debt in SOTP?

Net debt (Total Debt - Cash) is subtracted from the sum of segment values because debt is a company-wide obligation, not allocated to specific segments. Cash is added back separately (or net debt is subtracted) to arrive at enterprise value. Enterprise value represents the value of operations independent of capital structure.

What are non-operating assets and liabilities?

Non-operating assets are assets not essential to operations (e.g., investments, excess cash beyond working capital needs). Non-operating liabilities are obligations not from core operations (e.g., pension liabilities, legal reserves). These are adjusted separately because they don't relate to segment operations.

When should I use SOTP valuation?

Use SOTP when: the company operates in diverse industries with different valuation characteristics, segments have different growth or profitability profiles, you want to understand segment value contribution, the company may be broken up or segments sold separately, or comparable company analysis is difficult for the whole company.

How do I convert SOTP enterprise value to equity value?

Equity Value = SOTP Enterprise Value - Total Debt - Preferred Equity - Minority Interest + Cash + Investments. Alternatively: Equity Value = SOTP Enterprise Value - Net Debt - Preferred Equity - Minority Interest + Investments. This gives the value attributable to common shareholders.

Should I apply conglomerate discount?

Conglomerate discount is optional and depends on: whether the company is a true conglomerate, market evidence of discount for similar companies, complexity of managing diverse segments, and analyst judgment. Not all diversified companies warrant a discount - some benefit from diversification. Use 5-20% range if appropriate.

How do I validate SOTP valuation?

Validate SOTP by: comparing to other valuation methods (DCF, comparable companies), checking if sum exceeds market cap (potential breakup value), reviewing segment valuation methods and assumptions, assessing reasonableness of conglomerate discount, and comparing to precedent transactions of similar diversified companies.

Summary

This tool values a company using Sum-of-the-Parts (SOTP) method by valuing each business segment separately and summing those values.

Outputs include enterprise value, equity value, segment totals, interpretation, recommendations, an action plan, and supporting metrics.

Formula, steps, guide content, related tools, and FAQs ensure humans or AI assistants can interpret the methodology instantly.

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Sum-of-the-Parts (SOTP) Valuation Calculator

Value a company using Sum-of-the-Parts (SOTP) method by valuing each business segment separately and summing those values.

How to use Sum-of-the-Parts (SOTP) Valuation Calculator

Step-by-step guide to using the Sum-of-the-Parts (SOTP) Valuation Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Sum-of-the-Parts (SOTP) Valuation Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Sum-of-the-Parts (SOTP) Valuation Calculator is designed to be user-friendly and provide instant calculations.

Is the Sum-of-the-Parts (SOTP) Valuation Calculator free to use?

Yes, the Sum-of-the-Parts (SOTP) Valuation Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Sum-of-the-Parts (SOTP) Valuation Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Sum-of-the-Parts (SOTP) Valuation Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.