CFI's airline industry comps template provides a comparable companies universe for American Airlines Group Inc., a company in the airline industry. Check out CFI's retail industry comps template for an example of a different industry!
Comparable Company AnalysisComparable company analysis ("comps") is a valuation method that compares financial ratios across different businesses in an industry to value a company. The idea behind comps analysis is that if financial analysts will pay X amount for similar companies, they should pay the same X amount for the company being valued. In contrast with discounted cash flow (DCF) analysis, an intrinsic form of valuation, comps analysis is a relative form of valuation. Precedent transaction analysis, however, is similar to comps analysis where you look for external evidence to value a company. We have created this airline industry comps template to give you a look into valuing an airline company. On a basic level, comps analysis can be thought of as simpler than DCF analysis. Unlike DCF analysis, there are not many assumptions behind comps analysis. Conversely, DCF analysis uses many assumptions to forecast line items, increasing the level of complexity of the model. Alternatively, comps analysis can be considered more intuitive. Comparing things to determine relative value is common behavior. Thus, comps tables help make valuation easier to understand. Cyclical industries, in particular, benefit from the use of comps analysis. It is difficult to properly forecast companies that face seasonal or cyclical changes to cash flows. However, a comps analysis does face this difficulty, as all companies are within the same cyclical industry. Since the airline industry faces high seasonal changes with different popular vacation periods, CFI's airline industry comps template is a valuable tool.
Choosing Comparable CompaniesAn analyst must look for similar companies when choosing comparable companies for a comps table. There are several comparing factors that analysts look for when choosing these companies. While it is not usually possible to find a company that matches in every aspect, it is good to still remember all factors when building a comps table. CFI's airline industry comps template considers these factors:
- Industry Classification
- Growth Rate
- Capital Structure
- Similar size and geographical coverage
- Similar size and different geographical coverage
- Different size and similar geographical coverage
- Companies with similar business models