What Is Breakup Value?
Keywords: breakup value
If you are new to investing, you may have heard of breakup value, but have no idea what it means. Sounds bad, huh? If there is much discussion about the breakup value of a company, it could mean that the company is having problems and is about to be sold off.
..
Simply put, the breakup value is what a company would be worth if its component parts were sold off and the liabilities were paid. For example, a certain company may have multiple subsidiary businesses operating in different industries. It may have a computer division, a food division, and an entertainment division. To determine the breakup value, you would need to figure out what the total assets are for each subsidiary, minus the total liabilities.
When a corporation or conglomerate is sold, sometimes it is sold for cash, or for stock in the acquiring company, or both. As an example, if company A is sold to company B, company A may receive a certain amount of cash for the sale, along with a certain amount of common stock in company B. Company B might decide to give all of the shareholders of company A a single share of stock in B for every four shares they have of A.
There are certain situations that may cause a company to be broken up. In the event it does split up, you should find out what the breakup value will be and how it will affect the value of your stock. We will now review each of the possible situations so that you will remember to consider the breakup value of a company before it is sold.
If the corporation is being poorly managed, the board of directors may decide to sell off the company to get something for their stock or to get stock in another company that has competent management and can help their stock grow in value.
Another situation that may arise is if one of the subsidiaries within the corporation has liquidity problems and can not be salvaged, the entire company is affected. As a result, the corporation may have to sell several of their businesses in order to restore the bottom line.
Another reason why a company could be broken up is if one of the divisions within the company, although it might be profitable, is holding back the growth of the other divisions. As a result, the board of directors may decide to sell off or destroy the part of the company that is holding it back so that it can experience much larger growth in its other sectors.
Also, if one of the businesses that the company owns is facing a potential lawsuit, the corporation may decide to break off that business so that the other profitable segments within the company are not financially vulnerable to any judgement rendered against the business that is about to be sued.
Breakup value does not always have to be a bad thing, it can also be used as a way to assess the financial strength of a company so that you can determine whether to hold on to its stock. If the share price of a stock is trading at a discount relative to its total assets minus liabilities, then you should probably hold on to the stock, unless the company has a negative outlook for the future.
I hope what you have learned here was helpful and informative. If you can not determine the breakup value of a company on your own, ask your portfolio manager or stockbroker to get the number for you. You should know this information even if the company in which you are invested is doing well, because if the company folds quickly, it will be hard to sell the stock. If that happens, it is possible that the only way that you will be able to recoup your investment is when the assets are liquidated so that the bondholders and shareholders can be compensated.
Jim Pretin is the owner of www.forms4free.com, a service that helps programmers make free HTML forms.
Previous Articles Highlighter:
The FOREX Market Is A Goldmine (1)
If you want to begin currency tranding, try to set aside some money and open an account with an online broker. Start slowly, then as you get the hang of it, work your way up to larger trades and higher volume.
Stock Market Basics (2)
A discount broker, on the other hand, does not have access to all these investment vehicles. A discount broker makes money by opening up a lot of accounts and having a lot of customers, but a full-service broker makes money by placing a lot of trades within your account, because they receive a commission on each trade.
Introduction To The Forex Market (3)
The amount of dollars traded on the Forex market on a daily basis is in the trillions. Most of this currency trading takes place between between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.
Is Your Stockbroker A Crook? (4)
Most of the advice they provide is based on research done by analysts who work with them. A full-service broker offers a wider array of investment vehicles for you to put your money in, such as stocks, bonds, derivatives, annuities, and some also sell life insurance.
Understanding Your Insurance Policy (5)
You should skim through the huge packet of terms and conditions that are attached to your policy and then call your agent or broker with any questions or concerns you might have.
What Mergers Mean For Your Investments (6)
The management of the corporation usually holds most of the shares, so their votes count for the majority, but you should still consider your vote carefully. You should exercise your right to vote, and your decision should be based upon what will be best for the future value of your shares.
Introduction To Day Trading (7)
Keywords: day trading, daytrading Day trading is the practice of buying and then selling a stock all within a single day of market activity. Day traders dabble in a number of different financial instruments, such as stocks, currencies, stock options, and futures contracts such as interest rate futures, equity index futures, and commodities futures.
Introduction To Mutual Funds (8)
If you ask your average investor whether they have any of their investment dollars allocated to a fund, they will likely answer yes. There are literally trillions of dollars of American money currently invested in mutual funds.
Tax Consequences Of Municipal Bonds (9)
However, if you buy a municipal bond from another investor on the secondary market as opposed to buying directly from the issuer on the primary market, at a discount to its face value, you will owe capital gains taxes on the increase in principal you will receive when the bond is redeemed.
P/E Or PEG, Which Is Better? (10)
So, you should not necessarily run away from a company with a high P/E. In fact, those companies are sometimes the best investments, because if their earnings climb tremendously, then the stock will pay a large dividend in the future (for the uninitiated, dividends are a percentage of the profits of a company that are distributed to its shareholders).
Common Investment Scams (11)
Next on the list is an outright illegal practice called the pump and dump. This is when a small group of investors who hold a large number of shares in a company go around hyping the stock to the uninformed public.
Understanding Auto Insurance (12)
This is the amount of liability coverage you have for injuries you cause to other people in an accident. It is sometimes listed as a split limit, in which case the first number is the amount of liability you have per person, and the second number is the maximum total amount of money your policy will pay for all injured persons.
Penny Stocks: A Good Investment (13)
The OTC (Over-The-Counter) Bulletin Board is similar to the Pink Sheets. This exchange consists of relatively young companies either with no sales or a small amount of sales. Companies listed on it are sometimes fully reporting (meaning that they reveal how many shares they have outstanding and what their balance sheet looks like).
Understanding A Balance Sheet (14)
Try to set aside some time and log on to a stock quoting website. Look up the stocks of companies you are currently invested in, and then click on the link for their balance sheet.
Introduction To Stocks (15)
Try to set aside some money for investing and start while you are still young. The earlier you begin, the more money you can potentially make down the road.
How To Get Real Estate Listings Via Real Estate Marketing Articles (16)
Article marketing is particularly effective in generating lead and listing opportunitiess. Some of the more common ways to use them are via the following: Newsletters - some agents will use an article as a newsletter, a low cost highly leveraged way to share information.
Holiday Insurance - A Necessity Or A Luxury? You Decide (17)
Be informed: Cancellation insurance is different from the cancellation waiver that some travel agencies will offer. A conscientious traveler knows the difference. Lokking After Your Property On Holiday Personal Effects Coverage is holiday insurance that covers a traveler in the event that their baggage is lost, stolen or damaged in the course of the trip.
Cashback Credit Card For Reward-Loving Individuals (18)
This credit card offers you reward every time you make purchases or pay your monthly obligations using the card itself. Rewards may come into the form of rebates and financial incentives.
The Benefits Of Gathering Relocation Information (19)
Luckily, the internet has helped a lot of people over the years when it comes to relocating and is an excellent source of relocation information. There is much that you can find out about a new area by conducting a little online research.
Credit Card Types: Unsecured (20)
Each company has its own amount of time for grace payments so be sure you read each company's policy. Annual Fee: Before you apply for an unsecured credit card see if the company charges an annual fee.
Newer Articles Highlighter:
How To Select Mutual Funds (1)
A mutual fund is a collective investment security, and there are many different types. It may consist of a mix of several different types of investment vehicles, such as stocks, bonds, or derivatives, or it may consist of nothing but stocks that are part of a certain sector of the economy, or it could be just bonds.
Why You Should Invest In Penny Stocks (2)
Google is a rare example of a company that was able to do that, because they were so successful so quickly. But, most companies have to pay their dues and edge their way up from the penny stock exchanges to the bigger ones.
Why I Like Penny Stocks (3)
Try to set aside some money for investing in penny stocks and start while you are still young. The earlier you get started, the more money you can make in the long run.
Learn To Avoid Market Timing (4)
If I bought all 1,200 shares during month one, I would have cost me $105 per share. But, by spreading the purchase over a three month period, I managed to buy IBM at an average price of $100 per share.
How You Can Avoid Market Timing (5)
For the sake of argument, we will say that Yahoo is currently $10 per share. I determine that the value of the amount I am going to invest over the course of 1 year will rise, on average, $1,000 each quarter as I make additional investments.
Penny Stocks Can Be Lucrative (6)
This is important because you do not want to invest in a company that already has something like 500 million shares in its float. Companies with this kind of share count are likely having problems moving forward, so they have issued more and more shares to raise money just to stay alive.
The Truth About Bonds (7)
If inflation is moderate or contained, the Fed will likely leave rates unchanged. However, if the economy is slowing down and there is very little inflation or maybe even deflation, then the Fed might decide to reduce interest rates to create a stimulus for economic growth.
Risk Factors Associated With Bond Investing (8)
So, when interest rates go down, there is an increasing likelihood that your bond will be redeemed prior to maturity, if in fact the bond is callable. You should invest in bonds.
Strategies For Investing In Mutual Funds (9)
Just make sure you review the fee structure of the mutual fund you are interested in before you invest. Jim Pretin is the owner of www.healthpalace.net an online directory for herbal products
How I Reduce My Investment Risk (10)
Make sure you know something about the company you are going to invest in before you go forward. Jim Pretin is the owner of www.forms4free.com, a service that helps programmers create a free HTML form with the code to email the HTML form responses.
Introduction To Foreign Currency Trading (11)
However, do not gamble your nest egg on currency trading because inexperienced traders can lose everything they have rather quickly in spite of the relative safety of the Forex market.
Bonds Can Be As Risky As Stocks (12)
Claim status refers to your ability to liquidate your investment in the event the bond issuer goes bankrupt. If you are buying a government bond, such as a Treasury Bill, claim status is irrelevant, because the odds of the Federal Government going bankrupt are slim and none.
What Is The Purpose Of Umbrella Insurance? (13)
You are probably wondering when the umbrella would actually come into play. Here is an example: If you are involved in an auto accident where you crashed into a pedestrian who was walking on the sidewalk, resulting in medical expenses for that person that costed more than what your auto policy covered, the umbrella would be used.
Is Bond Investing Totally Safe? (14)
The Federal Reserve (also known as the Fed) meets every 6-8 weeks to evaluate the health of the economy. At each meeting, the Fed renders a decision regarding interest rates.
What You Need To Know About Day Trading (15)
When the stock has reached its historical minimum, it is said to have reached its support level, meaning it will probably not go down much further. However, new resistance and support levels are established all the time, so it is not always smart to rely on historical price levels to gauge future price movements.
Mutual Funds Make It Easy To Diversify (16)
Other funds invest solely in foreign companies, while some invest in certain sectors within the economy, such as the financial, technology, or industrial sectors. Also, some mutual funds may pick companies based on ideology, such as a socially responsible or environmental fund.
Can You Lose Money Investing In Bonds? (17)
But often, investors have to cash out their bonds well before the maturity date. If interest rates have moved up since you purchased the bond, and you sell it prior to maturity, then the bond will be worth less than your initial investment.
Internet Investment Scams (18)
You might receive an email containing a stock tip that could turn out to be a lucrative investment in the future. Just make sure you research the investment on your own before you partake in any investment that was sent to you via email.
Is The PEG Ratio Better Than The P/E (19)
So, you should not necessarily run away from a company with a high P/E. In fact, those companies are sometimes the best investments, because if their earnings climb tremendously, then the stock will pay a large dividend in the future (for the uninitiated, dividends are a percentage of the profits of a company that are distributed to its shareholders).
Bonds Are Equally Risky As Stocks (20)
However, you should also take into account the risk factors we have covered. Your portfolio should contain a mix of corporate, federal, municipal, and even junk bonds (there is always a default risk associated with junk bonds, but they pay a huge interest rate).