What is a sum-of-the-parts (SOTP) valuation and when do you use it?

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IBPrep · Accepted Answer

SOTP values each business segment of a diversified company separately using the methodology most appropriate to that segment, then sums the values. , a tech segment might get 6x revenue, a manufacturing segment 8x EBITDA), then you add corporate cash, subtract corporate debt and pension obligations, and apply a conglomerate discount (typically 10-20%) to reflect management complexity.

What is a sum-of-the-parts (SOTP) valuation and when do you use it?

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What is a sum-of-the-parts (SOTP)