Using Comps to estimate unknown financials? (MM)
Hi All,
I’m practicing my understanding of valuation and modeling in preparation for a potential summer analyst role at a MM Shop, but really just want to increase my understanding in general. I’m practicing using companies that have been a part of the shop’s deals, but most are private regional companies that don’t have public financials available.
I’m wondering, if you build a comprehensive comps list that covers the industry and companies of similar structure, can this be used in some way to roughly guesstimate the financials of the company i’m trying to value, to be used in further modeling?
Since it’s just practice, it doesn’t have to be super accurate especially since in practice i believe I would have those statements available to me, but i’m wondering if using public comps along with some adjustment for company size if this can give me some information to use in other models.
Thank you!
This is a weird exercise and I think a waste of time. The comps work you are doing is really useless. How most “modeling works”
Long winded way of saying, I think you are trying to like do a dcf or lbo or something, which likely won’t be what happens in your role. But even if it does, it’s not even worth using comps instead just use the following:
1) Have a deal value in mind (call it $500m) since you said mm
2) have an industry and look up general ebitda margins or just assume 40% for easy math since it’s prob in the middle of Sass 70% margin stuff and industrial single digit margin stuff
3) divide the deal value $500 by a revenue multiple that will be somewhere from 3x to 10x to get revenue and apply the ebitda margin.
Practice example:
$500m deal, revenue is $100m with 40m of ebitda. It really isn’t more complicated than this and you are making it a bizarre false precision exercise.
Thanks for the feedback! I appreciate it.
With that attitude you are going to make a great analyst. A few other unsolicited advice points:
I really appreciate the advice, and hope I can make something work out. I had an initial chat with the MD who runs the summer analyst program a couple of weeks ago and it was clear that I wasn’t prepared for any sort of technical questions. We agreed on a conversation again in a couple of months and so i’m trying to learn everything that I can possibly learn in depth so that I don’t make an ass out of myself again. I’m currently reading Rosenbaum & Pearl investment banking cover to cover, studying the m&i 400 heavily, and spending as much time on here reading as possible. If you have any other advice for building a very solid foundation i’d love to learn. Once again I appreciate your feedback immensely!
This was a comment I made on one of the top threads. I wouldn’t necessarily stop studying technicals, but the point is people over emphasize that part over actually being a normal person. Comment below:
Yeah, I’ll chime in on this one. My advice—stop studying the technicals. Most people don’t get an offer not due to technicals, but their story being not great. I knocked way more people for behavioral questions than technicals.
Key things most people flub or give crap answers to:
It sounds simple, but I almost never got cohesive confident answers to the above. Those that did, always seemed on another level to me. It’s also why I was able to get away with such little prep—I had a unique life story, very concrete reasons for entering the role, was very targeted with my outreach, and was likeable. Numerous times when I was on the other side of the table interviewing and selecting MD’s or D’s would say, “how did x do on technicals? I liked them.” If the answer wasn’t he/ she shit the bed, that kids getting an offer. Pretty confident I was one of those kids. What I said just made sense and people trusted I wasn’t giving manufactured answers, I had done independent research and concluded this was the right role for me and I was a confident competent person they could trust in a fire drill. They were right.
Agree with the other comment, no way this can be done with enough precision to be remotely accurate. Better exercise would be doing a public co, just pick a small cap if you want the right size range.
You can get a directional sense of revenue by employee count and then guess EBITDA margin based on industry comps but this won’t be remotely close to accurate. Certainly not enough so to model
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