Lecture: Comparable Companies Analysis (Trading Comps)

Vocabulary flashcards covering key concepts, terms, and steps from the Comparable Companies Analysis notes.

Comparable Companies Analysis (Trading Comps)

A valuation method that estimates a company's value by comparing it to similar industry peers using market-based multiples.

Universe for analysis

The set of potential comparable companies selected for benchmarking, identified by consulting peers or surveying public peers.

Closest comparables

The small subset of peers that most closely resemble the target company and are used for valuation.

Survey of target's public competitors

Starting point for identifying potential comparables by reviewing publicly listed peers.

Financial information sources

Sources such as SEC filings, consensus estimates, equity research reports, and press releases used to collect relevant data.

Spread

The process of collecting and calculating key statistics, ratios, and trading multiples for the comps.

Trading multiples

Valuation ratios (e.g., EV/EBITDA, P/E) used to compare companies.

Enterprise Value (EV)

A measure of a company’s total value, calculated as market capitalization plus debt minus cash.

Equity Value

Value attributable to shareholders; effectively the market capitalization of the company.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization; a measure of operating performance.

Net income

Profit after expenses, taxes, and costs; used as a performance metric.

Benchmarking

The process of laying down calculated values and comparing similarities/discrepancies to peers.

Means and medians

Statistical measures used as the basis for valuation ranges (average and middle value).

Valuation range

Using highs and lows to derive a range of values rather than a single point estimate; provides negotiation space.

Outliers

Values that lie far from the rest; may indicate mispricing or require further splitting of the universe.

Limitations

Possible misvaluation due to irrational market sentiment, and the fact that no two companies are identical; comps are a relative reference, not an exact measure.

Use with other valuation methods

Comparable analysis should be used in conjunction with additional methods, not as a definitive metric.

ValueCo (example case)

Assume ValueCo. is a private company and uses normalized financial stats to illustrate applying trading comps under economic conditions.