In this video on Sum of the Parts - SOTP Valuation, we discuss the approach to valuate sum of parts (SOTP) along with its limitations.
𝐖𝐡𝐚𝐭 𝐢𝐬 𝐒𝐎𝐓𝐏 (𝐒𝐮𝐦 𝐨𝐟 𝐏𝐚𝐫𝐭𝐬)?
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Sum of the parts is method of valuation of the firm where each of subsidiaries of firm or its business segment are valued separately and then all of them added together to arrive at the total value of firm.
𝐒𝐎𝐓𝐏 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐀𝐩𝐩𝐫𝐨𝐚𝐜𝐡
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Segment 1 - Cigarette Segment Valuation
Segment 2 - ITC Hotel Segment Valuation
Segment 3 - Paper Segment Valuations
Segment 4 - FMCG (Non Cigarettes) Segment
Segment 5 - Agriculture Segment Valuation
𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐒𝐮𝐦 𝐨𝐟 𝐭𝐡𝐞 𝐏𝐚𝐫𝐭𝐬 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧
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#1 - For each segment the sum of parts or SOTP relies on adequate information.
#2 - The value of the segment under SOTP depends on the stage of the business cycle.
#3 - Only when management decides to break up the segments and operate them as a separate company / unit can SOTP valuation be fully realized.
To know more about the 𝐒𝐮𝐦 𝐨𝐟 𝐭𝐡𝐞 𝐏𝐚𝐫𝐭𝐬 - 𝐒𝐎𝐓𝐏 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- www.wallstreetmojo.com/sum-of...
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