Let me know what you think. Thanks and take care. Great article, especially liked the section 4 on professional comparable company analysis. The article covers comprehensively what are involved in the comparable companies analysis.
I happen to notice something on section 2 and I would like to clarify. Could you clarify if this is correct? Coz I am trying to grasp the full concept of EV and Equity calculation, and this one just confuses me a little. Many Thanks for your note and pointing out the errors in excel calculation of Box valuation scenarios. Your logic of EV and Equity is correct. Again a big thanks to you for clarification of doubts like; why we deduct cash from EV and other things.
Excellent really very helpful. Thanks for this wonderful post. I have one suggestion. You should write frequently as post like these help us a lot. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.
Free Investment Banking Course. Login details for this Free course will be emailed to you. Forgot Password? Comparable Company Analysis This is Part 2 of the equity valuation series articles. In this article, we discuss the following — What is Comparable Company Analysis? How to read a comparable company analysis table? What is Comparable Company Analysis? Liquidity is the ability of the firm to pay off the current liabilities with the current assets it possesses.
Debt Debt refers to loans that a company has taken out. The only exception: convertible bonds, which may or may not be counted. There may be qualitative factors that explain that, and the DCF might tell us something quite different — but at first glance, this company seems richly valued.
Companies can stay mispriced for long periods unless specific events force their share prices to adjust. But if you do not have access, you can also use Finviz or Zacks to find companies and their basic financial information. Step 2: Determine the metrics and multiples you want to use. Step 3: Calculate the metrics and multiples for all the companies. Step 4: Apply the median or 25th or 75th percentile multiples from the set to your company to estimate its Implied Equity Value and Enterprise Value.
Comparable Company Analysis Template Click here to download a template for comparable company analysis , based on the example below for Steel Dynamics. We used the following screen for Steel Dynamics: Geography: U. It all goes back to the most important formula in finance: You want the comparable public companies to have similar Discount Rates and Cash Flows so that differences in their Growth Rates explain differences in their valuation multiples. Step 2: Determine the Metrics and Multiples You Want to Use Normally, you want 1 sales-based metric and profitability-based metrics and their corresponding multiples, over both historical and projected periods.
It might look something like this for Steel Dynamics note that the dates do not match up to the ones above because this was taken from a different version of the file : From this graph, our quick conclusion is that Steel Dynamics is likely overvalued. Cons: There may not be truly comparable companies. The market might be wrong! However, valuations are usually done for the purpose of a merger or acquisition, and simply analysing public companies will not give much information about premiums paid in transactions or the economic climate or the willingness to purchase companies.
Return to Finance Dictionary. What Are Public Comparable Companies? Narrow down the list to have companies, preferably with similar revenues, market capitalizations, industries and geographical locations. Calculate the average multiple values for the public companies and the relevant values for your company.
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