Comparable company analysis (comps)

Definition

Comparable company analysis (comps) is a valuation method that involves comparing the financial metrics of similar companies to estimate the value of another company. It is commonly used by analysts to determine stock prices and investment opportunities.

5 Must Know Facts For Your Next Test

1. Comps rely on multiples like Price/Earnings (P/E) ratio, Enterprise Value/EBITDA, and Price/Sales ratio.
2. The primary goal is to identify a peer group of companies with similar business operations and size.
3. Comps are considered a relative valuation method as opposed to absolute valuation methods like discounted cash flow (DCF).
4. Key data for comps analysis can be sourced from financial statements, market data, and industry reports.
5. Adjustments may be needed for differences in growth rates, profit margins, or capital structures among comparable companies.

Review Questions

• What are the key multiples used in comparable company analysis?
• How does a comparable company analysis differ from an absolute valuation method?
• What types of adjustments might be necessary when performing a comps analysis?

Related terms

DiscountedCashFlow: A valuation method that estimates the value of an investment based on its expected future cash flows.

PriceEarningsRatio: A ratio for valuing a company that measures its current share price relative to its per-share earnings.

EnterpriseValueEBITDA: A multiple used in valuation to compare the enterprise value of a company to its earnings before interest, taxes, depreciation, and amortization.