Comparable Companies Analysis

Comparable Companies Analysis Valuation

A comparable companies analysis is always used in company valuations and is a relative valuation method. The method indicates the value of similar companies in relation to different key ratios that is later compared to your business. Common key ratios in a comparable company valuation are: EV/EBITDA and EV/SALES.

Step by step/tutorial

This comparable company valuation tutorial is quite simple and straight on – to give you a good understanding of a trading comps valuation and how it works. If you want to take your modeling to the next level I can highly recommend this modeling package which I believe is the best available financial modeling tutorial on the market.

1. Select the universe of comparable companies

To start with, you should try find stock-listed companies that are similar to the company you wish to estimate value on. This group of companies are called “peer group”. If you have difficulties finding such companies, try to find companies that are affected by the same external effects such as your company. For example, if you are producing windows and cannot find a listed window manufacturer, try to find companies that manufactures real estates. A listed real estate company has almost the same customers as a window producer, and are affected by changes in the economy and consumer behavior in similar ways.

Look for companies in your region and size! If you run a US company, choose companies listed in the US. If you run a global company, choose companies that also have business in several countries. If you run a small company, choose small companies and so on.

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2. Locate the necesserary financial information

If you have a database such as Bloomberg or Reuters, this step is easy. If you do not have access to these types of resources, you will have to look in annual reports, search on google, read analyses and sector reports – to gather your data. What you should look for are Valuation measures and forecasts. List your list of companies in excel to get a good overview (see our example below).

Comparable Valuation Example

3. Spread key statistics, ratios and trading multiples

Now analyse your peer group and calculate key multiples. Commonly used multiples are EV/EBITDA, EV/SALES and growth rates.

4. Benchmark the comparable companies

Comparable Valuation Analysis

5. Determine valuation in this comparable company valuation

Use the key financial numbers from the company you wish to value. For example, if your company is predicted to have sale of 100 million in 2010, this would imply an Enterprise Value of 130 million (1.3 x 100) in our example. If your company is predicted to make an EBITDA of 10 million for 2010, this implies an Enterprise Value of 83 million (8.3 x 10).

The valuation range for this company is therefore in the range: 83 – 130 million!

What now? – Further reading

If you want to become a real Investment Banker and master financial models, I have two recommendations for you:

The first recommendation is by far the best financial modeling guide available on the market. If you can afford it you should get it, since it will help you understand all aspects of valuation. Link ยป

The other recommendation I have is the book “Investment Banking” by Rosenbaum and Pearl which is a fantastic book with some great tutorials. It describes the trading comps valuation approach as well as other valuation methods. Included with the book are also Excel templates.

External guides and resources

Other Valuation methods

6 responses to “Comparable Companies Analysis”

  1. ankit

    Hi, I want to value I searched your article on net. This seems to be a helpful article but I’m not able to follow the method properly. can you please send an excel sheet which you posted as an image for my reference. I hope to understand things better from the excel sheet.


  2. Pooja

    Hi.. ITC is a conglomerate in India with about 65% of sales accounted for by their cigg business and the balance coming from a range of businesses including hotels, paper and paper boards, FMCG- food, personal care, retail, IT and so on.

    I have been trying to figure out what would be a good comparative company for ITC. HUL- unilever india- is close in terms of sales volume, however its a FMCG pure play; other tobacco companies in India have relatively far lower sales figures..

    sum of the parts is prob the way to undertake a valuation but what in your opinion would be the best comparables/how would you suggest i go about doing a comparables analysis?


  3. Thana


    I was wondering about the author’s conclusion on the final Enterprise Value. According to this article, the range value is situated between [83 - 100]. To me it should be [83 -130].

    Please, correct me if I am wrong.


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