Breakup Value

AAA

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.

INVESTOPEDIA EXPLAINS '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. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Discontinued Operations

    A segment of a company's business that has been sold, disposed ...
  3. Asset Stripping

    The process of buying an undervalued company with the intent ...
  4. Segment

    A component of a business that is or will generate revenues and ...
  5. Operating Earnings

    Profit earned after subtracting from revenues those expenses ...
  6. Conglomerate Discount

    A reference to the tendency of the stock market to undervalue ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Investing Basics

    What Is The Impact Of Research On Stock Prices?

    The answer to this question is directly related to the importance of information in the marketplace.
  2. Active Trading

    Data Mining For Investors

    Being an informed investor is extremely important, but where and how do you get the data for your research?
  3. 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.
  4. Chart Advisor

    Time To Rebalance? These ETFs Say So

    Caution ahead: 2014 has been very good to U.S. large-cap indexes, but lagging commodities and funds holding mid- to small-caps point to a slowdown.
  5. Mutual Funds & ETFs

    Will Stock Market VOOdo Continue?

    The Vanguard S&P 500 ETF (VOO) offers a relatively safe investment opportunity for people who aren't sure which way the market is headed.
  6. Chart Advisor

    A Total Stock Market ETF For Any Portfolio

    Utilizing index funds and ETFs, such as Vanguard's VTI, is one of the best ways for the average investor to track the broad markets and minimize fees.
  7. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  8. Investing Basics

    The Education of Warren Buffett

    How did Warren Buffett get to be the richest investor in America? A little luck, a lot of pluck and a head for numbers.
  9. Investing Basics

    Investor, Know Thyself: Choose A Stock Category Based On Your Risk Tolerance

    Choosing the right investment isn't just about choosing the right investment. It also requires that you intimiately understand your own risk tolerance.
  10. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center