Comparable-company analysis
What is Comparable-company analysis?
Comparable-company analysis estimates relative value by applying market multiples observed for selected peer companies to a subject company's financial metrics. Credible results depend on economically relevant peers, normalized inputs, consistent dates, and a transparent enterprise-to-equity bridge that accounts for every material claim.
How comparable analysis works
Select companies with similar business mix, geography, customers, growth, profitability, cyclicality, risk, and capital intensity. Normalize financials and calculate consistent equity or enterprise multiples. Apply a reasoned range to the subject metric, then bridge enterprise value to equity where required. Peer selection and adjustments matter more than merely computing a median.
Choosing multiples
P/E and price-to-book pair equity value with common earnings or book value. EV/revenue, EV/EBIT, and EV/EBITDA pair enterprise value with pre-interest operating metrics. The denominator should reflect the economics of the sector and be positive and comparable. Forward multiples require aligned forecast periods and estimate definitions.
Example
A subject company has $200 million EBITDA and comparable EV/EBITDA ranges from eight to ten times. Implied EV is $1.6 to $2.0 billion. Subtracting net debt and other claims gives equity value. The range should then be adjusted for differences in growth, margins, quality, customer concentration, and accounting rather than accepted mechanically.
How to interpret it
Comps reveal how the market prices similar exposures at a moment in time. They do not prove intrinsic value and can transmit sector-wide overvaluation or distress. Explain why the subject deserves a premium or discount. Use historical ranges, transaction evidence, and DCF as cross-checks, while respecting differences between trading and control values.
Limitations
No company is perfectly comparable. Accounting, fiscal years, forecasts, capital structures, and one-offs differ. Small peer sets and subjective exclusions enable cherry-picking. Multiples can become meaningless with negative denominators. Market prices change faster than reported financials, and using stale enterprise-value bridges can distort every comparison.
Practical checklist
Document inclusion and exclusion criteria before viewing outcomes, align dates and currencies, normalize financials, and reconcile EV. Use several relevant multiples without averaging incompatible measures. Show peer dispersion and operating differences, test sensitivity, and preserve the complete peer set. Do not select only companies whose multiples support the desired conclusion.
Also known as: comps, trading comparables
Sources and further reading
- Market-Based Valuation: Price and Enterprise Value Multiples, CFA Institute