How to Build a Comparable Company Analysis (Comps)

Why Comparable Company Analysis Matters

Comparable company analysis (comps) is one of the most fundamental valuation methodologies in investment banking. Whether you're pitching an M&A transaction, evaluating an investment opportunity, or answering interview questions, you'll use comps to establish valuation benchmarks based on how similar companies are valued by the market.

The beauty of comps is its intuitive logic: similar companies should trade at similar valuations. If five software companies with similar growth rates and margins trade at 8-10x revenue, a sixth company with comparable characteristics should reasonably fall in that range. This relative valuation approach provides market-based reality checks on other methodologies like DCF.

Comps appears in virtually every pitch book, investment memo, and fairness opinion. It's tested extensively in interviews because it combines several critical skills: company research, data gathering, financial analysis, and judgment about what makes companies comparable. This guide walks you through building comps step-by-step, from selecting peers to presenting findings.

What is Comparable Company Analysis?

Comps is a relative valuation methodology that values a company based on how the market values similar public companies. Rather than forecasting cash flows or discounting future returns, you're asking: what do investors currently pay for companies like this one?

The methodology involves identifying truly comparable public companies, gathering their financial data and market valuations, calculating relevant valuation multiples, analyzing the distribution of those multiples, and applying appropriate multiples to your target company to derive an implied valuation range.

Comps relies on the efficient market hypothesis—the idea that public market valuations reflect all available information and represent fair value. While markets aren't perfectly efficient, public company valuations provide useful benchmarks for valuing similar businesses.

When Comps is Most Useful

Comps works best when you have multiple truly comparable public companies in the same industry with similar business models, growth profiles, and margins. It's particularly valuable for:

Comps has limitations when comparable companies are scarce, the target company's business model is unique, or market valuations are temporarily distorted by bubbles or crashes.

Understanding common valuation multiples provides foundation for the metrics you'll calculate in comps analysis.

Step 1: Select Comparable Companies

Selecting appropriate peers is the most critical and subjective part of comps. Your entire analysis depends on choosing companies that are genuinely comparable.

Criteria for Comparability

Industry and business model: The most important criterion. Companies should operate in the same or closely related industries with similar business models. A software-as-a-service company isn't comparable to a hardware manufacturer, even if both are "technology companies."

Look for companies that generate revenue the same way, serve similar customer bases, and face similar competitive dynamics. A B2B enterprise software company resembles other B2B enterprise software companies more than consumer mobile apps, even though both are "software."

Size and scale: Compare companies of similar size measured by revenue, market capitalization, or assets. A $50 billion company operates differently than a $500 million company—they have different margins, growth rates, competitive positions, and investor bases.

General rule: select companies within 0.5x to 2x the target's size. If your target has $1 billion revenue, focus on companies with roughly $500 million to $2 billion in revenue. This isn't rigid—sometimes you must include larger or smaller companies if true peers are scarce.

Growth profile: Companies growing at 30% annually aren't comparable to those growing at 5%, even in the same industry. Investors pay premiums for growth, so growth rates significantly affect multiples. Ideally, select companies with similar historical and expected future growth.

Profitability and margins: Compare companies with similar profitability characteristics. High-margin businesses trade at premium multiples to low-margin ones. Look for peers with comparable EBITDA margins, operating margins, and unit economics.

Geography: Geographic focus affects valuation. U.S. companies often trade at premiums to similar European or Asian companies due to market dynamics. When possible, focus on companies in the same primary markets.

How Many Comparables to Include

Include 5-10 truly comparable companies if possible. Fewer than 5 makes your analysis thin and potentially unrepresentative; more than 10 becomes unwieldy and likely includes less-comparable companies.

Quality beats quantity—better to have 5 highly comparable companies than 15 companies where half are marginal fits. If you can't find 5 good comparables, acknowledge the limitation rather than forcing poor fits.

Where to Find Comparable Companies

Start with company filings and investor presentations, which often list competitors. Capital IQ, FactSet, and Bloomberg all have screening tools to identify companies by industry, size, and characteristics.

Research reports from equity analysts covering the sector provide peer groups. Management teams often discuss competitive landscape in earnings calls, identifying direct competitors. Industry associations and trade publications also highlight key players.

Screening Example

Suppose you're valuing a mid-sized B2B SaaS company with $500 million revenue, 40% growth, and 75% gross margins. Your search criteria might be:

This focused screening helps you identify 6-8 truly comparable companies rather than including every software company regardless of fit.

Step 2: Gather Financial Data

Once you've identified comparable companies, gather the financial and market data needed to calculate valuation multiples.

Key Data Points to Collect

Data Sources

Company filings: 10-Ks, 10-Qs, and 8-Ks provide historical financial information. These are publicly available on EDGAR or company investor relations websites.

Market data: Stock prices and shares outstanding come from financial websites like Yahoo Finance, Google Finance, or Bloomberg. For fully diluted shares, check the treasury stock method in company filings for in-the-money options.

Analyst estimates: Consensus revenue and earnings estimates come from FactSet, Bloomberg, or Capital IQ. These forward estimates are critical for calculating forward-looking multiples.

Company presentations: Investor decks and earnings presentations often provide helpful metrics and segment breakdowns not readily available in filings.

Building Your Data Table

Create a spreadsheet with comparables in rows and data points in columns:

Having all data in one organized table makes calculating multiples straightforward.

Understanding enterprise value vs equity value ensures you calculate the bridge from market cap to enterprise value correctly.

Step 3: Calculate Valuation Multiples

With financial data gathered, calculate the relevant valuation multiples for each comparable company.

Common Multiples

EV / Revenue: Enterprise value divided by revenue. Used especially for high-growth companies that may not be profitable yet. Shows how much investors pay for each dollar of sales.

EV / EBITDA: Enterprise value divided by EBITDA. The most common multiple in M&A, showing value relative to operating cash flow before depreciation and amortization.

EV / EBIT: Enterprise value divided by EBIT (operating income). Similar to EV/EBITDA but includes depreciation and amortization, useful for capital-intensive industries.

P / E (Price to Earnings): Equity value divided by net income. Common in public markets but less useful for M&A given different capital structures.

Calculate both last twelve months (LTM) and next twelve months (NTM) multiples when possible. NTM multiples based on consensus estimates are often more relevant since they reflect expected future performance.

Calculation Mechanics

Enterprise value is calculated as market capitalization plus net debt (debt minus cash). Some analysts also adjust for minorities, preferred stock, and pension obligations depending on materiality.

Building Your Multiples Table

Create a structured spreadsheet showing calculated multiples for all comparables. For each company, display the multiples in a clear format:

Continue this format for all comparables in your set. Below the individual company multiples, include summary statistics for each multiple type: mean, median, 25th percentile, and 75th percentile. The median is typically most representative since it's less affected by outliers.

Your final presentation should make it easy to scan across companies and compare multiples at a glance, with the summary statistics clearly highlighted so readers can quickly identify the relevant valuation ranges.

Step 4: Analyze the Multiple Distribution

Once multiples are calculated, analyze the distribution to understand patterns and identify appropriate valuation ranges.

Statistical Analysis

Calculate the key statistics for each multiple:

The median is usually preferred because extreme outliers (one company trading at 15x revenue while others trade at 5-7x) skew the mean. The interquartile range (25th to 75th percentile) often provides a reasonable valuation range.

Identifying Outliers

Look for companies trading at multiples significantly different from the group. Ask why:

Sometimes outliers should be excluded from your final analysis if they're not truly comparable. Other times, outliers provide valuable information about what drives valuation premiums or discounts in the sector.

Understanding What Drives Multiples

Analyze why certain companies trade at higher or lower multiples within your comparable set:

Growth drives premium multiples: Companies growing 50% annually trade at higher multiples than those growing 20%, even in the same industry.

Margins matter: Higher-margin businesses command premium valuations because they convert revenue to cash more efficiently.

Market position: Market leaders often trade at premiums to smaller competitors due to competitive advantages and lower risk.

Profitability path: Unprofitable high-growth companies may trade at premium revenue multiples if they're expected to reach strong profitability as they scale.

This analysis helps you determine where your target company should fall within the range based on its specific characteristics.

Build comprehensive technical skills: From linking financial statements to understanding LBO models—use our complete guide covering 400+ technical questions.

Step 5: Apply Multiples to Your Target

With comparable multiples analyzed, apply appropriate ranges to value your target company.

Selecting the Right Range

Don't simply apply median multiples mechanically. Consider where your target falls relative to comparables:

Be prepared to justify your positioning. If you're applying premium multiples, explain specifically why based on growth, margins, or competitive advantages.

Calculating Implied Valuation

Apply the selected multiple range to your target's metrics:

Example: If your target has $500 million LTM revenue and comparables trade at 5.0x to 7.0x EV/Revenue with 6.0x median:

Apply the same logic to multiple metrics (revenue, EBITDA) and both LTM and NTM figures. This creates a range of implied valuations that you can triangulate to a reasonable conclusion.

From Enterprise Value to Equity Value

Remember that applying EV multiples gives you enterprise value. To get equity value (relevant for acquisition price or equity investment):

Equity Value = Enterprise Value - Net Debt + Other Adjustments

This equity value represents what an acquirer would pay for 100% of the equity.

Step 6: Present Your Analysis

The final step is presenting your comps analysis clearly and professionally.

Standard Comps Table Format

Create a formatted table showing:

Formatting Best Practices

Key Takeaways to Highlight

When presenting comps, emphasize:

Common Mistakes to Avoid

Including Non-Comparable Companies

The most common error is padding your comparable set with companies that aren't truly similar. Five highly comparable companies beats ten companies where half are questionable fits. Quality over quantity.

Using Stale Data

Market data changes daily. Always specify the date of your market data (stock prices, market caps). Using month-old prices without disclosure undermines your analysis's credibility.

Ignoring Growth and Margin Differences

Don't treat all comparables as equal. A company growing 50% annually deserves a higher multiple than one growing 15%, even in the same industry. Acknowledge and explain differences in your analysis.

Mechanical Application of Medians

Don't blindly apply median multiples without considering where your target sits relative to comparables. If your target has superior characteristics, justify applying premium multiples. If it's weaker, apply discounts.

Poor Documentation

Always cite your sources and document assumptions. Note where data came from (company filings, FactSet estimates, Bloomberg), when market data was pulled, and any adjustments made. This allows others to verify and update your work.

Confusing EV and Equity Multiples

Don't mix enterprise value multiples (EV/Revenue, EV/EBITDA) with equity multiples (P/E). Use enterprise value multiples for operating metrics and equity multiples only for net income or equity-specific measures.

Interview Applications

Comps appears frequently in investment banking interviews. Be prepared to:

Walk Through the Process

Interviewers may ask: "How would you value Company X using comps?" Walk through the methodology:

1. Identify 5-10 comparable public companies based on industry, size, business model, and growth 2. Gather financial data and calculate enterprise values 3. Calculate relevant multiples (EV/Revenue, EV/EBITDA) 4. Analyze the distribution and understand what drives variations 5. Apply appropriate multiples to the target company 6. Adjust from enterprise value to equity value as needed

Select Comparables on the Spot

"What companies would you include in a comps for [Company X]?" Have a mental framework:

Discuss Advantages and Limitations

Understand when comps is most and least useful:

Master complete interview prep: From discussing deals to avoiding common mistakes—prepare comprehensively for technical and behavioral questions.

Key Takeaways

Conclusion

Comparable company analysis is a fundamental valuation tool that every investment banker must master. The methodology combines quantitative analysis with qualitative judgment—gathering data and calculating multiples is straightforward, but selecting truly comparable companies and interpreting results requires experience and business sense.

Build comps systematically: select comparables carefully based on multiple dimensions of similarity, gather accurate and current data, calculate multiples consistently, analyze distributions to understand what drives valuations, and apply multiples thoughtfully based on your target's specific characteristics relative to peers.

The skill develops through practice. Build comps for companies in different industries to understand how comparability criteria shift across sectors. Analyze why certain companies trade at premiums or discounts within peer groups. Over time, you'll develop intuition for what makes companies comparable and how to position targets within valuation ranges.

Master comps alongside other valuation methodologies like DCF and precedent transactions. No single methodology provides perfect answers—the best valuations triangulate across multiple approaches. Comps provides market-based benchmarks that ground your analysis in current investor sentiment while complementing more theoretical approaches.

Whether you're pitching an M&A transaction, evaluating an investment opportunity, or answering interview questions, solid comps analysis demonstrates financial acumen and judgment. Invest time in learning the methodology properly, and you'll use it throughout your career in finance.