Comparable Company Analysis

by Emily Weller

Comparable company analysis compares the valuation multiples of one company to a company within the same industry or universe. For example, a comparable company analysis may be performed among publicly traded companies that produce candy. Companies may also be grouped by size rather than industry. An analysis may be conducted on several small businesses or on a group of multinational corporations. Investment bankers perform the analysis, or "comps," to determine if a company is performing as required or to identify the market value of a currently private company.


When you perform a comparable company analysis, you must compare companies that are somehow related. It doesn't make sense to compare a car company to a pizza company. Choose companies based on the industry or location of the companies. Another option is to select companies that serve a similar customer base or that offer the same services. Ideally, you'll find companies that match in more than one area. For example, you may compare publicly traded candy companies that produce chocolate bars in the Midwest. Choosing companies to compare should not be guesswork. Look at SEC filings such as the annual report on Form 10-K, which summarizes a company's performance. You may also consult databases that list companies or look at companies' proxy statements.

Valuation Through Multiples

Determine the valuation of each company you are comparing using multiples. A multiple represents either the market value of a company or its enterprise value. Enterprise value is the value of a company should someone wish to purchase it. Market value refers to the value of stocks. You should look at several multiples, including the price-to-earnings ratio (P/E), the enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio and earnings per share (EPS) when performing comps. The more multiples you examine, the better a sense of comparison you will have for the companies. Multiples for companies are public information. Use a company's trading symbol, or ticker, to find its multiples.


A spreadsheet makes comparing the companies simple. Create a spreadsheet with a column for each multiple, as well as columns for the companies' names, stock prices and enterprise values. Below all the data for the companies, list the average, median, high and low values for each multiple. For example, if you are using the price-to-earnings ratio as a comparison point, and Company 1 has a P/E of 10, Company 2 has a P/E of 7, Company 3 has a P/E of 8.56, Company 4 has a P/E of 5.78 and Company 5 has a P/E of 8.98. The high is 10, the low is 5.78, the median is 8.56 and the average or mean is 8.06.


When you look at the spreadsheet, you should be able to determine the valuation of the companies quickly. In the example in Section 3, you can see that Company 1 has the highest P/E, which suggests holders of its stock expect greater earnings than owners of any of the other four stocks expect. The multiples that matter most to you depend on the industry you are evaluating. In some industries, enterprise values are more important than market values.

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