CFI's retail industry comps template is an example of a comparable companies universe for a company in the retail industry – Lululemon Athletica Inc. For an example of another industry, check out CFI's telecom industry comps template!

Comparable Company Analysis

Comparable company analysis ("comps") is one of the three most common valuation methods. Comps analysis compares the financial ratios of multiple businesses value a company.  Unlike the discounted cash flow (DCF) analysis, an intrinsic form of valuation, comps analysis is a relative form of valuation. This makes comps analysis similar to precedent transaction analysis, where you look for external evidence to value a company. This retail industry comps template is designed to give a simple look into valuing a company in the retail industry. In many ways, comps analysis is easier to understand than DCF analysis. Unlike DCF analysis, a comps analysis does not require many assumptions. In contrast, DCF analysis uses assumptions to forecast each line item, with many moving parts in the model. Additionally, comps analysis is more intuitive. Comparing things to determine relative value is a natural part of human life. Due to this, comps tables make valuation easier to visualize and understand. Another benefit of comps analysis is that it takes into account how the market is doing. If the market is doing well, this will be reflected in the comparable companies as well. This idea also applies to firms in cyclical industries, as the cyclical nature should be captured by all the companies in the industry. This helps compensate for one of the weaknesses of DCF analyses – that it is hard to forecast cyclical companies. This is especially important for the retail industry, which is why CFI has created a retail industry comps template.

Choosing Comparable Companies

When choosing comparable companies for a comps table, an analyst must choose companies similar to the valuation company. Financial analysts look at several comparison points when choosing comparable companies. It is not likely that all of these elements will match, but it is always good to consider them while choosing companies for your comps table. CFI's retail industry comps template considers these factors:
  • Industry Classification
  • Size
  • Geography
  • Growth Rate
  • Profitability
  • Capital Structure
As this is is an industry-specific template, industry classification is matched by default. However, it is important to look at more specific subcategories of an industry. For example, Lululemon is a retail clothing company. Thus, other retail clothing companies such as Inditex (BME:ITX) are appropriate matches. However, Lululemon also produces sports clothing. Therefore, a company like Under Armour, which also produces sports clothing would be a great match for Lululemon. Conversely, Nike also produces sports clothing, but we have chosen not to include it in this template as a significant portion of their product offering is in shoes, which Lululemon does not cover. However, valuation is both an art and a science. You can modify this retail industry comps template to include Nike or Adidas if you feel they are good choices. As growth rate, profitability, and capital structure are typically difficult to match, we have prioritized size and geography as the matching factors. This template includes companies that show the following characteristics as well:
  • Similar size and geographical coverage
  • Similar size and different geographical coverage
  • Different size and similar geographical coverage
  • Companies with similar business models
CFI covers all kinds of valuation techniques in our Financial Modeling and Valuation Analyst® certification program. Take a look at our program and some of our free courses to learn all the skills you need to become a world-class financial analyst!
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