Breakup Value

DEFINITION of 'Breakup Value'

The sum-of-parts value of a publicly traded company. This value is derived by analyzing each business segment of a company independently. This is usually applied to large cap stocks that are likely to operate in several different markets or industries. A breakup value analysis may be brought about by investors if the market cap of the stock is less than the breakup value for a prolonged period of time.

BREAKING DOWN 'Breakup Value'

If a company is performing poorly, or the stock has not kept up to the perceived level of "full value", investors may call for the company to be split apart, with proceeds returned to investors as cash, stock in spun-off companies, or a combination of both.

Investors can also calculate a breakup value on a perfectly healthy company as a way to determine a potential floor for the stock, or a potential entry point for a prospective buyer. In order to accurately calculate a company's breakup value, detailed data is needed on the revenue, earnings and cash flows for each distinct operating unit of the company. From there, relative valuations based on publicly-traded industry peers can help to derive a value for the segment as a spun off stock.

RELATED TERMS
  1. Sum-Of-Parts Valuation

    Valuing a company by determining what its divisions would be ...
  2. Breakup Fee

    A common fee used in takeover agreements if the seller backs ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  4. Value Stock

    A stock that tends to trade at a lower price relative to it's ...
  5. Valuation

    The process of determining the current worth of an asset or company. ...
  6. Market Value Of Equity

    The total dollar market value of all of a company's outstanding ...
Related Articles
  1. Investing

    Use Breakup Value To Find Undervalued Companies

    Find out a company's worth if it were sold in pieces - it may be more than you think.
  2. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
  3. Markets

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  4. Investing

    What Is The Value In Value Investing?

    Value investing has its advantages, but it also has significant drawbacks. We look at the pros and cons.
  5. Investing

    Why Do Some Failed Mergers Result in Break-Up Fees?

    When mergers go bad, there's often a break-up fee involved of as high as 3-5% of the value of the proposed merger.
  6. ETFs & Mutual Funds

    Value Investing Strategies in a Volatile Market

    Volatile markets are a scary time for uneducated investors, but value investors use volatile periods as an opportunity to buy stocks at a discount.
  7. Investing

    Cheap Stocks Or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  8. Investing

    Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.
  9. Investing

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  10. Investing

    Value Investing: Common Alternatives To Value Investing

    There are dramatic differences in the ways different types of investors make their investment decisions. In this section, we'll look at some of the most common investment philosophies and see ...
RELATED FAQS
  1. What is the difference between book value and market value

    Learn the differences between book value and market value, and see how investors use each type to determine if a company ... Read Answer >>
  2. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
  3. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  4. What is the difference between enterprise value and equity value?

    Valuating a business accurately depends heavily on the purpose of the valuation. Learn how enterprise value and equity value ... Read Answer >>
  5. What is the difference between market capitalization and market value?

    Understand the difference between market capitalization and market value, including the elements used for the calculation ... Read Answer >>
  6. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center