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Comparable Company Analysis

Definition - What does Comparable Company Analysis mean?

Comparable company analysis, or "comps," is an evaluation analysis used to compare the valuation of similar organizations and use the implied valuation metrics to a target company. As the name suggests, the major assumption is that the companies in the analysis have comparable financial and qualitative characteristics. It is often used by investment banks and valuation firms to determine a target company's market price and overall value.

Divestopedia explains Comparable Company Analysis

Comparable company analysis is used to determine how a company is performing relative to its competitors and other firms that bear a resemblance to its business type. Typically, this type of analysis is used when evaluating and pricing a firm.

With comparable company analysis, the following items are usually taken into consideration:

  • Firm size financial ratio (relative to the industry)
  • Historical profitability
  • Operational ratios
  • Valuation multiples

In order to conduct a comparable company analysis, a group is assembled that consists of comparable companies (usually in size, market value and industry). The peer group is critical to the usefulness of a analysis. The analysis will often use trailing performance metrics and future performance metrics.

Comps are easy to calculate using widely available data from publicly traded companies; however, they can be influenced by market conditions. Most experts agree that conducting comparable company analysis is a useful method for accessing the current market level of fundamental metrics included in valuations, but are less reliable when the comparable companies that are thinly traded. Comps are also not useful if there aren't comparable companies for the peer group.

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