Comparable company analysis (Comps) is a relative valuation technique which compares the valuation multiples of similar public companies and uses them to determine the target value of another company. Unlike the discounted cash flow (DCF) analysis, which is an intrinsic form of valuation where the firm value is calculated using forecasted free cash flows, Comps looks at available market information of industry peer group to estimate the value of a business.
How to Perform Comps ValuationThere are multiple steps in performing a Comps analysis on a target company:
- Identify the appropriate group of comparable companies based on criteria such as industry classification, geography, size (revenue, assets, no. of employees), growth rate, and margins.
- Gather financial information of the comparable companies from sources such as Bloomberg Terminal, Capital IQ, SEC filings, and company's annual reports.
- Create a Comps table listing key information including company name, share price, market capitalization, net debt, enterprise value, revenue, EBITDA, and earnings per share (EPS).
- Calculate valuation multiples for these companies; some of the most frequently used multiples are EV/Revenue, EV/EBITDA, P/E, P/NAV, and P/B.
- Take the average or median of the comparable companies' multiples and multiply it by the appropriate financial data of the target company to arrive at the enterprise value or equity value.
How to Use this Excel TemplateThis detailed comps table template provides you the proper structure and layout of a professional comps table which can be used to value companies with multiple business segments. This comps analysis is performed on Amazon (AMZN) by comparing its industry peer companies in each segment and calculating the individual enterprise value. At the end, all enterprise values are combined to arrive at the sum-of-the-parts (SOTP) valuation of AMZN. The ultimate goal of this comps table to find out the target share price of Amazon, which investors can use to determine whether they should buy, sell, or hold the company's stocks. Once you've downloaded the template, change the business segments and comparable companies to what you would to analyze. Then, replace all hard-coded numbers in blue font to the appropriate figures of your comparable companies and target company. Finally, the model will automatically generate the enterprise value, market capitalization, and target price for the company. Use this Comps table to perform valuation on companies with complicated business structure at ease!
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