Sum-Of-Parts Valuation

AAA

DEFINITION of 'Sum-Of-Parts Valuation'

Valuing a company by determining what its divisions would be worth if it was broken up and spun off or acquired by another company.

INVESTOPEDIA EXPLAINS 'Sum-Of-Parts Valuation'

For example, you might hear that a young technology company is "worth more than the sum of its parts." This means that the value of the tech company's divisions could be worth more if they were sold to other companies. In most cases, larger companies have the ability to take advantage of synergies and economies of scale that are unavailable to smaller companies, enabling them to maximize a division's profitability and unlock unrealized value.

RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Acquisition

    A corporate action in which a company buys most, if not all, ...
  3. Abnormal Earnings Valuation Model

    A method for determining a company's worth that is based on book ...
  4. Split-Off

    A means of reorganizing an existing corporate structure in which ...
  5. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  6. Conglomerate Discount

    A reference to the tendency of the stock market to undervalue ...
RELATED FAQS
  1. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Conglomerates: Cash Cows Or Corporate Chaos?

    Huge companies may not be as infallible as previously assumed. Find out why bigger isn't always better.
  3. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  4. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  5. Chart Advisor

    How To Invest In Corporate Spin-offs

    In many cases, a spin-off is a win-win for the companies involved. But how can traders cash in on the corporate gerrymandering?
  6. Bonds & Fixed Income

    Cashing In On Corporate Restructuring

    Companies use M&As and spinoffs to boost profits - learn how you can do the same.
  7. Investing News

    6 Unlikely Rivals That Should Merge

    If these companies are looking for growth and cost-cutting, the best bet might be to look to their main competitors.
  8. Investing News

    The Appeal Of Company Spinoffs

    Companies are increasingly turning to spinoffs for a variety of reasons, including improving performance.
  9. Personal Finance

    Apple To Acquire Canada, Spin Off Quebec

    This deal will see a sleeker and faster running country. But don't worry, Apple won't make any changes to Tim Hortons or hockey.
  10. Personal Finance

    Media Mashup: Who Owns Whom?

    You'd be surprised by how many publications fall under the umbrella of one company. Discover the big media companies and what they control.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center