Sum of the parts valuation. Large mature companies often have very diverse operations with quite distinct business segments, and we refer to these as conglomerates. However, this diversity can cause problems for valuation as we need to determine the appropriate valuation multiple to value a company, or if we're using DCF, we need to determine the appropriate cost of capital. Here's an example of a well-known conglomerate, that's Walt Disney Company, which has major operations in the broadcasting and cable business. It has a theme park business, and it also has a large content and movie production business. Now these are really different businesses with very different growth expectations, different capital intensities, and very different risk profiles. So if we wanted to value Walt Disney using valuation multiple, which multiple should we use? Now, if we look at other broadcasters, we see that they currently trade on EV/EBITDA multiples around 20 times. If we look at other theme park operators, we see that they currently trade on an EV/EBITDA multiple of around 15 times. And if we look at other content and movie production companies, we see that they currently trade on an EV/EBITDA multiple of around 12 times. But which multiples should we use if we want to value Walt Disney? Now, exactly the same question will arise if instead we want to use DCF valuation, and we want to determine the cost of capital of the Walt Disney operations, since the different parts of the business have very different risks. Now sum of the parts valuation is the technique that we use to address this issue. And as the name suggests, we value each segment separately using an appropriate valuation technique or valuation multiple for that segment, and then we add them together to give the total EV of the business. Once we have the total EV, we can then walk over the EV bridge in the usual way to derive equity value. One thing to note is that sometimes we need to adjust the EV to include a conglomerate premium or discount if the diversification of the business creates or destroy synergies. For example, it could be that by having very diverse operations, this creates distractions for management, and therefore destroys value. Or it could be that there are strategic benefits from combining these diverse operations which are not captured in the segment multiples. However, the question of what premium or discount to use is not easy to answer. If the business hasn't undergone any major changes in recent years, typically analysts will look at the historic valuation of the combined business versus the sum of the parts to identify the historic premium or discount, and then will continue to apply that same premium or discount perspectively. Although we've focused here on sum of the part valuation using multiples, the same principles can be applied when using sum of the parts in DCF valuation, or more commonly to mix up the approach, so that DCF is used for some segments whilst multiples are used for others. This is particularly helpful if one segment lacks comparable peers, so DCF valuation is the only viable technique. However, where DCF is used, an appropriate cost of capital is gonna be needed for that segment rather than for the business as a whole. So typically the cost of capital will be estimated using the capital structure of peer companies since we don't usually have sufficient information to calculate the current capital structure of the business segment.