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. Sum-Of-Parts Valuation

    Valuing a company by determining what its divisions would be ...
  4. Revenue

    The amount of money that a company actually receives during a ...
  5. Break Fee

    1. A fee paid by a target company to bidders (during an acquisition) ...
  6. Spinoff

    The creation of an independent company through the sale or distribution ...
RELATED FAQS
  1. What are the main differences between a mixed economic system and pure capitalism?

    A mixed economy is one in which the government does not own all of the means of production, but government interests may ... Read Full Answer >>
  2. How can I calculate the forward p/e of the S&P 500?

    Forward price-to-earnings, or P/E, for the S&P 500 is calculated by dividing the market share per price by the forecasted ... Read Full Answer >>
  3. Did the repeal of the Glass-Steagall Act contribute to the 2008 financial crisis?

    The repeal of the Glass-Steagall Act was a minor contributor to the financial crisis, if it contributed to the crisis at ... Read Full Answer >>
  4. What's the difference between economic value added (EVA) and economic rent?

    Economic value added (EVA) measures the performance of a company's management team by comparing operating profit to total ... Read Full Answer >>
  5. How can the problem of asymmetric information be overcome?

    Asymmetric information is inherent in most, if not all, markets. To take a basic example, a patient admitted to a hospital ... Read Full Answer >>
  6. How were the figures 80 and 20 arrived at in the 80-20 rule (Pareto Principle)?

    The 80-20 rule has its roots in early 20th century Italy. Economist Vilfredo Pareto – best known for the concepts of Pareto ... Read Full Answer >>
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. Investing

    Should You Average Down When Trading Stocks?

    Averaging down on a stock can allow you to avoid having to admit you are wrong. On top of this and given enough time, the strategy can result in a profit.
  5. Charts & Patterns

    Are These the Top 3 Value Stocks of 2015?

    A look at three value plays for the long-term investor.
  6. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  7. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  8. Investing Basics

    Understanding Risk-Return Tradeoff

    The essence of risk-return tradeoff is embodied in the common phrase “no risk, no reward.”
  9. Investing

    Why 2015 Does Not Look Like Y2K

    The technology-heavy Nasdaq Composite Index hit a new record last week, as a broader rally in stocks helped nudge it past its 2000 peak.
  10. Trading Strategies

    Value Investing & Short Selling Are Like Oil & Water

    To be a good value investor, you need to find and buy bargain stocks but more importantly, you have to stick to the trade until the market recognies the worth of these securities.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center