Comparable company analysis.
In plain English
Comparable company analysis builds a group of businesses with similar size, industry, and growth, calculates valuation multiples for each, and applies the median or range to the company being valued. Typical multiples include price-to-earnings and enterprise value to EBITDA. The method reflects what buyers are actually paying today rather than what a model says a business should be worth. Its weakness is the peer group: choosing which companies belong in it is a judgment call that can move the answer substantially. It also inherits any mispricing in the market as a whole.
01Why it matters
It is the reality check on any model, because a valuation that ignores what similar businesses trade for is describing a market that does not exist.
02The math, step by step
Four peers trade at EV/EBITDA multiples of 7, 8, 9, and 12, a median of 8.5. The company being valued has EBITDA of $200 million. 8.5 times $200 million gives an implied enterprise value of $1.7 billion.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A discounted cash flow builds value from the company's own projected cash and assumptions. Comparable company analysis borrows the market's current pricing of other businesses. When the two disagree, the gap is usually a statement about the peer group or the forecast, not proof either is wrong.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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