Sum-of-the-parts valuation
Valuing a company’s businesses separately and combining the estimates on a consistent basis. If the segments are valued on an enterprise-value basis, adjust the total for net debt and other relevant items before comparing it with the company’s equity market value.
Sum-of-the-parts valuation in round numbers
Hypothetical, in US$ millions at one valuation date: three wholly owned units have estimated enterprise values of 50, 40, and 30. Their total is 120. Subtract net debt of 20 to estimate equity value of 100, assuming no other adjustments. A market capitalization of 80 is 20% below that equity estimate: (100 − 80) ÷ 100 = 20%. Net debt already accounts for cash; do not add that cash again.
Scroll horizontally to read all columns.
| Item | Value |
|---|---|
| Unit A enterprise value | 50 |
| Unit B enterprise value | 40 |
| Unit C enterprise value | 30 |
| Total enterprise value: 50 + 40 + 30 | 120 |
| Less: net debt | −20 |
| Estimated equity value: 120 − 20 | 100 |
| Market capitalization (equity value) | 80 |
| Difference: 100 − 80 | 20 |
Terms Related to Sum-of-the-parts valuation
Holding-company discount · Holding company (holdco) · Multiple arbitrage · All of the glossary