Fundamental Glossary / Valuation Methods
Sum of the Parts Valuation (SOTP)
Valuing each business separately and adding the values, then subtracting claims that sit above the equity.
Formula
Sum of segment values + surplus cash and non-core investments - net debt - minorities = equity value.
What it means
A conglomerate with a finance arm, a factory, and a listed subsidiary hides the pieces inside one multiple. SOTP values each piece on the multiple or cash flow that fits it.
Holding-company discounts are often applied at the end because the market does not give full credit for assets trapped under a holdco.
How to read it
SOTP is useful when the parts really could be separated, or when one loss-making division is burying a valuable one. It is less useful when the segments share customers and costs that cannot be split.
What to watch
Double-counting is the failure mode: valuing a subsidiary in the segment and also adding the listed stake, or applying a multiple to earnings that still include the corporate overhead you also deducted.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.