How do you do a comparable company analysis?

How to Do Comparable Company Analysis: The Process

1. Step 1: Select an appropriate set of comparable public companies.
2. Step 2: Determine the metrics and multiples you want to use.
3. Step 3: Calculate the metrics and multiples for all the companies.

How do you find comparable multiples?

Typical multiples for Comps include:

1. EV/Sales: The Enterprise value of the company divided by Sales/Revenue (Operating multiple)
2. EV/EBITDA: The Enterprise value of the company divided by EBITDA (Operating multiple)
3. P/E: Price/Earnings ratio for a company (Equity multiple).

How do you analyze multiples?

Using the Multiples Approach Investors start the multiples approach by identifying similar companies and evaluating their market values. A multiple is then computed for the comparable companies and aggregated into a standardized figure using a key statistics measure, such as the mean or median.

How do you know if a company is comparable?

A comparable universe should ideally consist of companies that have similar size profiles to the company you are trying to value. This could be a comparison based on revenue. Revenue (also referred to as Sales or Income), assets. Correctly identifying and, number of employees, or other factors.

What are comparable ratios?

Key Takeaways. Comparable company analysis is the process of comparing companies based on similar metrics to determine their enterprise value. A company’s valuation ratio determines whether it is overvalued or undervalued. If the ratio is high, then it is overvalued. If it is low, then the company is undervalued.

What are the methods of company analysis?

When valuing a company as a going concern, there are three main valuation methods used by industry practitioners: (1) DCF analysis, (2) comparable company analysis, and (3) precedent transactions.

What is a trading comparable?

What is Trading Comparables? The principle behind trading comparables is that similar businesses can be used as a market benchmark to establish a valuation range for a corporation. The comparables share key markets, growth prospects, operational drivers and risks.

What are the pros and cons of multiples based valuation?

The simplicity of using multiples in valuation is both an advantage and a disadvantage. It is a disadvantage because it simplifies complex information into just a single value or a series of values. This effectively disregards other factors that affect a company’s intrinsic value, such as growth or decline.

Why use forward looking multiples?

We advocate greater use of forward priced multiples. They are more comparable and relevant for relative valuation comparisons and provide a better basis for terminal values in DCF analysis. Using a forward-looking profit metric is more consistent with the forward-looking nature of prices.

What are the 5 methods of valuation?

There are five main methods used when conducting a property evaluation; the comparison, profits, residual, contractors and that of the investment. A property valuer can use one of more of these methods when calculating the market or rental value of a property.

What is a comparable company analysis?

Comparable company analysis is the process of comparing companies based on similar metrics to determine their enterprise value. A company’s valuation ratio determines whether it is overvalued or undervalued. If the ratio is high, then it is overvalued. If it is low, then the company is undervalued.

What is a comparable analysis?

Why are multiples analysis still used in valuation?

that determines the different market values for comparable companies. Thus, the assumption is a certain ratio is applicable and can be interpreted across different companies. Despite being the oldest technique in valuation, the multiples analysis is still used. However, it is now being overshadowed by the discounted cash flow analysis

How to do comparable company analysis in Excel?

Step 1: Select an appropriate set of comparable public companies. Step 2: Determine the metrics and multiples you want to use. Step 3: Calculate the metrics and multiples for all the companies. Step 4: Apply the median or 25th or 75th percentile multiples from the set to your company to estimate its Implied Equity Value and Enterprise Value.

Why is it important to use comparable multiples?

The multiples comparable method is a useful tool if it is correctly applied since it incorporates the investors’ expectations about the future performance of the industry in which the company is being valued and is a simple and widely used methodology for valuing companies in the market.

How to calculate the value of a comparable company?

We can now conduct a valuation of Company Q using the mean value for 2019 Revenue, EBITDA and P/E multiples. Based on our comparable company analysis – We get a valuation range of $9.8 – $13.5 for Company Q using Revenue, EBITDA and P/E multiples.