Comparable Company Analysis Cheat Sheet
How Comps Work: The Step-by-Step Process
Running a proper comps analysis follows a structured workflow. Skip a step and your output is unreliable.
| Step | What You Do | Why It Matters |
|---|---|---|
| 1. Select Peer Group | Identify 5–15 companies with similar business models, size, and growth profiles | Garbage peers = garbage valuation |
| 2. Gather Financial Data | Pull revenue, EBITDA, net income, and balance sheet data | Need consistent, comparable figures |
| 3. Calendarize Financials | Adjust for different fiscal year ends so all companies align | Apples-to-apples comparison |
| 4. Calculate Multiples | Compute EV/EBITDA, P/E, EV/Revenue, and other relevant multiples | These are your valuation benchmarks |
| 5. Determine Range | Use median and mean of peer multiples, exclude outliers | Gives you a defensible valuation range |
| 6. Apply to Target | Multiply target’s metrics by peer multiples | Derives the implied valuation |
Key Valuation Multiples
Different multiples suit different situations. Here’s what to use and when.
| Multiple | Formula | Best For |
|---|---|---|
| EV/EBITDA | Enterprise Value ÷ EBITDA | Most industries — capital structure neutral |
| P/E Ratio | Share Price ÷ EPS | Profitable, stable companies |
| EV/Revenue | Enterprise Value ÷ Revenue | High-growth or unprofitable companies |
| P/B Ratio | Share Price ÷ Book Value per Share | Banks, insurance, asset-heavy firms |
| EV/EBIT | Enterprise Value ÷ EBIT | When D&A differs significantly across peers |
| PEG Ratio | P/E ÷ Earnings Growth Rate | Growth-adjusted comparison |
Peer Selection Criteria
Choosing the right peers is the most important — and most subjective — part of the analysis. Filter by these dimensions:
| Criterion | What to Look For |
|---|---|
| Industry / Sector | Same GICS sub-industry or direct competitors |
| Size | Similar market cap and revenue scale (within 0.5x–2x) |
| Growth Profile | Comparable revenue and earnings growth rates |
| Margins | Similar operating margins and profitability |
| Geography | Same primary market exposure |
| Business Model | Recurring vs. one-time revenue, B2B vs. B2C |
Enterprise Value Bridge
To use EV-based multiples, you need to calculate enterprise value correctly:
This bridges equity value to total firm value, making comparisons across capital structures possible. Always use net debt (total debt minus cash) for a cleaner picture.
Common Adjustments
Raw financials rarely tell the whole story. Normalize for these items before computing multiples:
| Adjustment | Why |
|---|---|
| Non-recurring charges | Restructuring, litigation — not part of ongoing operations |
| Stock-based compensation | Non-cash expense that varies widely across peers |
| Operating leases | Capitalize to ensure comparability under ASC 842 |
| Excess cash | Remove from EV if not needed for operations |
| Pension obligations | Treat as debt-like for EV calculation |
Comps vs. Precedent Transactions
| Dimension | Comps | Precedent Transactions |
|---|---|---|
| Data Source | Current market trading data | Historical M&A deal prices |
| Control Premium | Not included (minority stake) | Included (buyer paid for control) |
| Timeliness | Always current | May be outdated if deals are old |
| Use Case | Fair value for minority stakes | M&A pricing, fairness opinions |
| Typical Valuation | Lower range | Higher range (20–40% premium) |
Key Takeaways
- Comps provide a market-based valuation by comparing a company to similar publicly traded peers
- EV/EBITDA is the most widely used multiple because it’s capital structure neutral
- Peer selection is the most critical and subjective step — bad peers produce bad valuations
- Always normalize financials for non-recurring items and accounting differences
- Use forward multiples for more accurate market-based pricing
Frequently Asked Questions
What is the ideal number of comparable companies?
Aim for 5 to 15 peers. Fewer than 5 makes your sample unreliable. More than 15 usually means you’re including companies that aren’t truly comparable, which dilutes the analysis.
Why is EV/EBITDA preferred over P/E for comps?
EV/EBITDA removes the impact of different capital structures, tax rates, and depreciation policies. P/E is distorted by leverage and non-cash charges, making it less comparable across companies.
How do you handle a peer with negative EBITDA?
Exclude it from the EV/EBITDA calculation. You can still use EV/Revenue or other multiples where the peer has positive figures. Flag the exclusion in your analysis.
What’s the difference between comps and a DCF?
Comps give you what the market is willing to pay today. A DCF model estimates intrinsic value based on projected free cash flows. Bankers typically use both to triangulate a valuation range.
Can you use comps for private companies?
Yes, but apply a private company discount (typically 15–30%) because private companies lack liquidity. You can also use precedent transactions of similar private deals as a complement.