what does the sotp tell you 
sum of the parts valuation also known as breakup value analysis helps a company understand its true value for example you might hear that a young technology company is worth more than the sum of its parts meaning the value of the company s divisions could be worth more if they were sold to other companies in situations such as this one larger companies have the ability to take advantage of synergies and economies of scale unavailable to smaller companies enabling them to maximize a division s profitability and unlock unrealized value the sotp valuation is most commonly used to value a company comprised of business units in different industries since valuation methods differ across industries depending on the nature of revenue it is possible to use this valuation to defend against a hostile takeover by proving the company is worth more as a sum of its parts it is also possible to use this valuation in situations where a company is being revalued after a restructuring the sum of the parts valuation is also known as the breakup value as it assesses what individual segments would be worth if the company was broken up example of how to use the sum of the parts valuation sotpconsider united technologies nyse utx which said it will break the company into three units in late 2018 an aerospace elevator and building systems company using the 10 year median enterprise value to ebit ev ebit multiple for peers and 2019 operating profit projections the aerospace business is valued at 107 billion the elevator business at 36 billion and building systems business 52 billion thus the total value is 194 billion lessing out net debt and other items of 39 billion the sum of the parts valuation is 155 billion the difference between the sotp and discounted cash flow dcfwhile both are valuation tools the sotp valuation can incorporate a discounted cash flow dcf valuation that is valuing a segment of a company may be done with a dcf analysis meanwhile the dcf uses discounted future cash flows to value a business project or segment the present value of expected future cash flows is discounted using a discount rate limitations of using sum of the parts valuation sotpthe sum of the parts sotp valuation involves valuing various business segments and more valuations come with more inputs as well sotp valuations do not take into account tax implications notably the implications involved in a spinoff learn more about the sotp valuationfor help on choosing the right valuation tool check out this guide to picking the right valuation method 