Module II· Sum-of-the-PartsIntermediate

Question

How do you treat net debt and group debt in an SOTP?

Answer

Net debt treatment:

Single-aggregate method: compute the SOTP EV sum, then subtract group net debt at the end. IB standard.
Allocated method: allocate net debt per segment (based on asset distribution or segment capital structure). Rarely used. Example aggregate: Segment 1 EV $1bn + Segment 2 EV $600m + Segment 3 EV $400m = SOTP EV $2bn − group net debt $500m − pensions $100m = equity value $1.4bn.

Deep diveShow more details

Pitch tip

'SOTP EV $2.0bn; less corporate net debt $500m, pension underfunding $100m, NCI at sector multiples $120m; equity value $1.28bn.'

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