Comparable Analysis Definition

The most common way to value a company is through the use of comparable analysis. This method attempts to find a group of companies which are comparable to the target company and to work out a valuation based on what they are worth. The idea is to look for companies in the same sector and with similar financial statistics (Price to Earnings, Book Value, Free Cash Flow, EBITDA etc) and then assume that the companies should be priced relatively similarly. Comparable analyses are frequently referred to as "comps." The process for how to do a comparable analysis is as follows:

  • Find a selection of comparable companies
  • Choose and calculate the appropriate multiples for each company
  • Find the average value of each multiple across the comparable companies
  • Use the multiples to determine a valuation for the target company

Comparable analysis can either be done using trading multiples (how the company operates) on public comparable companies or transaction multiples (at what relative level was the company bought or sold) on precedent transactions. Some of the most commonly used multiples are:

  • Price to Earnings
  • Enterprise Value / EBITDA
  • Return on Equity
  • Return on Assets
  • Price to Book Value

 

To learn more about this concept and become a master at valuation modeling, you should check out our Valuation Modeling Course. Learn more here.

Module 1: Introduction

Module 2: Valuation: The Big Picture

Module 3: Enterprise Value & Equity Value Practice

Module 4: Trading Comparables Introduction

Module 5: Trading Comps: The Setup

Module 6: Trading Comps: Spreading Nike (NKE)

Module 7: Trading Comps: Spreading Adidas (ADS.DE)

Module 8: Trading Comps: Spreading Lululemon (LULU)

Module 9: Trading Comps: Spreading Under Armour (UA)

Module 10: Trading Comps: Benchmarking and Outputs

Module 11: Precedent Transactions: Introduction

Module 12: Precedents: The Setup

Module 13: Spreading Tiffany & LVMH

Module 14: Spreading FitBit & Google

Module 15: Spreading Reebok & Adidas

Module 16: Spreading Jimmy Choo & Michael Kors

Module 17: Spreading Dickies & VF

Module 18: Valuation Wrap-Up

Module 19: Bonus: Non-GAAP Practice

Learn More Here

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