Comparable company analysis is a way to determine how much a company is worth by comparing it to other companies of similar size in similar industries. Comparable company analysis is sometimes referred to by other names, such as comparable analysis, comps analysis, comps valuation, or public comps valuation. They all mean the same thing, though.
In this guide, we’ll cover:
- What Is Comparable Company Analysis Used For?
- How To Do a Comparable Company Analysis
- How To Show Comps Analysis Skills On Your Resume
- Related Investing Skills
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What Is Comparable Company Analysis Used For?
Valuing a company using comparable company analysis is primarily used in investment banking to help analysts compare different companies’ enterprise values. Enterprise value is the value of the entire company, including shareholder stakes, all assets, and the value of the company’s debt: how much is all of the company put together worth?
Knowing a company’s enterprise value can inform many investing decisions. For example, people working in private equity may use comparable company analysis to determine if a company is overvalued (bad investment) or undervalued (good investment). Additionally, comparable analysis is useful in mergers and acquisitions —- if you want to buy a business, it is helpful to see what similar companies were bought and sold for.
How To Do a Comparable Company Analysis
A comps analysis gives a company’s relative value — how much it should be worth based on how it compares to other companies. Other methods of valuation, like a DCF valuation, give an intrinsic value, or how much it is worth based on internal financial factors.
Completing a comparable company analysis is relatively easy:
1. Choose the right peer group.
The peer group is the companies you want to compare. This is ultimately the hardest step because there are some subjective factors in making this decision. In general, comparable companies should be in the same industry and be of a similar size. Other important similarities to look for are: geographic location, revenue, assets, number of employees, growth rates, and profitability.
2. Pull financial data.
The financial information you need depends heavily on the companies themselves. For example, if you are looking at relatively young companies, there is more meaningful information in the company’s annual revenue than there would be in projected earnings given a young company may not have the historical data to accurately predict future earnings.
Key metrics to cover in a comps analysis include:
- Share price: cost for one share of the company
- Market capitalization: total value of all company shares held by stockholders
- EBITDA: earnings before interest, taxes, depreciation, and amortization (a measure of profitability)
- Revenue: the amount of money generated from sales
- Enterprise value: how much the whole company is worth
Once you have the chosen companies and all the data ready, you can create a table that lays out each company with its respective metrics.
3. Calculate the ratios.
Comparable analysis relies on ratios such as enterprise value versus revenue, or enterprise value versus EBITDA. These ratios make comparing companies easier because they put the data in the same, easier-to-digest format for each company.
For example, if you don’t have a ratio, you would have to compare each company’s revenue individually, without consideration of how their earnings relate to debt or share price. Ratios allow an analyst to compare metrics with more context.
>>MORE: Learn how to do a comparable company analysis with the Investment Banking Virtual Experience Program from Citi APAC.
How To Show Comps Analysis Skills On Your Resume
Comparable company analysis is a form of valuation, so it can easily be combined with other valuation methods you are familiar with. For example, in your skills section, you can note that you have “valuation skills, including comps and DCF valuation.”
Another way to include comparable company analysis skills on your resume is to call it out as part of prior work or internship experience. If you have completed a comparable analysis from start to finish as part of an internship, for example, you can note that in your work or internship experience section.
Learn more ways to include hard skills in your resume.
Related Investing Skills
Knowing how to do a comparable company analysis is a key skill for many finance professionals, especially investment bankers. Some other skills that are vital for succeeding in investing include:
- Using Excel
- Completing discounted cash flow (DCF) valuations
- Understanding investing terms and topics, including common stocks
- Calculating compound annual growth rates (CAGRs)
You can learn these investing skills (and more!) using Forage’s Investment Banking Skills Passport.
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