Sum-of-the-parts
Valuing a group by valuing each business segment separately, adding the values and deducting net debt and other claims. The shortfall of the group's market value below it is a conglomerate discount.
Where you will meet it
Sum-of-the-parts appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain valuing a firm as the sum of its parts and why conglomerates trade at a discount
“Sum-of-the-parts valuation values each business segment on its own, often with the multiple or cash flow model suited to that segment, adds the segment values and then deducts net debt and other corporate claims to reach equity value.”
- Apply valuation methods to companies undergoing corporate restructuring and explain the values that result
“For breakups, sum-of-the-parts values each segment separately, subtracts net debt, and compares the result with market value to measure any conglomerate discount.”
See also
Practise it
Practise sum-of-the-parts until it is automatic: questions that explain every wrong option.
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