Comparable Companies
Investment Banking glossary · Investment Banking Valuation
Definition
Valuation methodology (``trading comps'') based on multiples of similar publicly traded peers — typically EV/EBITDA, EV/Revenue, EV/EBIT, and P/E. Reflects minority trading values, so excludes a control premium; useful for benchmarking but sensitive to peer selection. Standard process: (1) select universe, (2) spread financials and multiples, (3) compute mean/median, (4) apply benchmarked multiple to the target's metric, (5) bridge from EV to equity value.
Comparable Companies in plain English
Comparable Companies (or 'comps') is a way to estimate what a business is worth by looking at what investors currently pay for similar companies that are publicly traded. Instead of pricing the whole company in dollars, you use ratios like price relative to earnings — for example, if similar firms trade at 10 times their profits, and your target earns 50 million, that hints at a roughly 500 million value. Because these prices come from everyday stock trading (tiny slices changing hands), they reflect what a normal shareholder pays, NOT the extra premium a buyer pays to seize full control. It's exactly how you'd price a used car: check what the same make, model, and mileage are selling for right now, then apply that going rate to yours — just be careful the cars you compare are genuinely alike.
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Practice Comparable Companies
What implied equity value does the comparable-company analysis produce?
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