1 sep_Comparables Companies Analysis.pptx

Basics on Comparable company analysis

1. Comparable Companies Analysis BEGINNING WITH RELATIVE VALUATION

2. Comparable Companies Analysis Comparable companies analysis (“comparable companies”, “trading comps”, or simply “comps”) is one of the primary methodologies used for valuing a given focus company, division, business, or collection of assets (“target”). It provides a market benchmark against which a banker can establish a valuation for a private company or analyze the value of a public company at a given point in time. Comps has a broad range of applications, most notably for various mergers & acquisitions (M&A) situations, initial public offerings (IPOs), restructurings, and investment decisions.

3. Steps to Comparable Companies Analysis 3 Step I. Select the Universe of Comparable Companies Step II. Locate the Necessary Financial Information Step III. Spread Key Statistics, Ratios, and Trading Multiples Step IV. Benchmark the Comparable Companies Step V. Determine Valuation

4. Step 1a: Selecting the Universe of Comparable Companies – Study the Target 4 Begin the valuation exercise by studying the two profiles of the target: Business Profile Financial Profile Sector Products and Services Customers and End Markets Distribution Channels Geography Size Profitability Growth Profile Return on Investment Credit Profile

5. Business Profile   Financial Profile   Sector / Industry Industry or markets in which a company operates. Conveys key drivers, risks, and opportunities. Size Measured in terms of market valuation and key financial stats. Companies of similar size within a sector tend to have more comparable multiples. Products & Services Companies offering similar products/services usually serve as better comparables . Profitability Ability to convert sales into profits. Higher margins typically justify higher valuation multiples. Customers & End Markets The purchasers of a company’s products and the broader markets it serves. Performance often tied to economic conditions and end-market demand. Growth Profile Investors reward high-growth firms with higher multiples. Historical and forward-looking growth rates are analyzed. For mature companies, EPS growth is a more meaningful measure. Distribution Channels The avenues through which a company sells (e.g., wholesale vs. direct-to-consumer). Different structures affect costs and operations. Return on Investment Measures efficiency in generating returns. Common ROI metrics include ROIC (Return on Invested Capital), ROE (Return on Equity), and ROA (Return on Assets). Geography Regional differences (e.g., U.S. vs. other markets) affect business drivers, regulations, and risks. Comparisons often focus on U.S.-based peers for consistency. Credit Profile Refers to creditworthiness as a borrower. Measured by leverage (debt levels) and coverage (ability to meet interest obligations). Reflects sector-specific risks and capital structure considerations.