I'd like to examine how to value a company that holds both Marketable Securities and Operating Business by looking at Berkshire Hathaway (BRK.A, BRK.B) as an example. Historically, there are two major valuation approaches.
1. The first approach is demonstrated in the latest issue of Barron's, where Andrew Bary attempts to value Berkshire Hathaway by focusing on it's overall price to book ratio.
2. The second approach is to apply an appropriate earnings multiple to overall earnings (including the "look-through earnings" of the Marketable Securities).
So which valuation approach should be used? The answer, outlined by Warren Buffett himself in this year's Chairman's Letter, is a combination of both approaches.
"Berkshire has two major areas of value. The first is our investments: stocks, bonds, cash equivalents...
Berkshire's second component of value is earnings that come from sources other than investments and insurance....
In 2008, our investments fell from $90,343 per share of Berkshire (after minority interest) to $77,793...Our second segment of value from from a pre-tax earnings of $4,093 per Berkshire share to $3,921 (again after minority interest)."
So the answer is the sum of these two value components: the market value of the Marketable Securities held plus the value of the Operating Businesses (which is determined by applying an appropriate earning multiple to the earnings stream from just the operting businesses). And in the case of Berkshire, one could probably very conservatively just apply the current market multiple.
Disclosure: No position in BRK.A or BRK.B