While DCF asks what a company is worth based on its future cash flows, Comparable Company Analysis—often just called Comps—asks a different question:
What are similar companies worth today, and what can that tell us about this one?
Comps is one of the most widely used valuation methods in investment banking. It’s fast, data-driven, and grounded in real-time market information. If you’ve ever heard someone say a stock is “trading at 10× earnings,” that’s comps. The logic is that if businesses are alike in size, industry, and risk, they should be valued in a similar way.
In this article, we’ll break down how Comps work, how to build a comps set, where to find the data, how to clean it, and how to calculate the right multiples. We’ll also look at how bankers use comps in deal negotiations, IPO pricing, and fairness opinions—because while the math is straightforward, applying it well is a craft.
What Is Comparable Company Analysis, Really?
Comps is a relative valuation method. Instead of trying to project the future, it compares the company you’re valuing to a group of public companies that are similar in business model, size, risk, and financial profile.
Here’s the core idea: if Company A is trading at 10× its EBITDA, and Company B is very similar, then Company B is probably worth something close to 10× its EBITDA, too.
It’s like real estate. If a 3-bedroom apartment in your building just sold for $300,000, and yours is almost identical, that recent sale gives you a market anchor. Comps does the same thing, but with companies and financial metrics.
What makes Comps powerful is that it reflects how the market values real businesses today—not theoretical forecasts. That’s why it’s widely used in IPOs, where investors care about peer positioning, and in M&A deals, where buyers want to see how a target compares to public benchmarks.
But comps only work well if you build them correctly—and that starts with picking the right peers.
How to Select and Build a Good Comps Set
Choosing the right set of comparable companies is the most important—and most subjective—part of a comps analysis. If you get this wrong, everything that follows will be misleading, no matter how clean your spreadsheet looks.
So what makes a company truly “comparable”?
You’re looking for public companies that are operating in the same industry, have similar business models, and ideally share similar growth rates, margins, and risk profiles. You’re not trying to find clones—but you are trying to build a peer group that the market sees as reasonably close.
In practice, this selection is usually based on four core dimensions:
- Industry focus – Companies should compete in the same sector or sell similar products or services.
- Geographic exposure – Businesses should operate in the same region or face similar currency, regulatory, and macroeconomic risks.
- Size and scale – Revenue, EBITDA, and market capitalization should fall within a reasonable range to ensure financial comparability.
- Business model and structure – Capital intensity, recurring revenue, customer concentration, and margin structure should be broadly aligned.
Analysts typically start with screeners available in data platforms such as Capital IQ, FactSet, or FinancialModelingPrep, filtering companies by NAICS codes, revenue bands, and profitability metrics. But qualitative judgment is equally important. A company might look similar on paper, but once you dig into its filings, it might turn out to have a very different cost structure, customer base, or growth strategy.
Most comps sets include between 5 to 10 companies, though in niche sectors, finding even three truly relevant peers can be a challenge. Once the list is ready, the next step is to gather and normalize their financial data so the multiples can be calculated and applied consistently.
How to Calculate Valuation Multiples from Comparable Companies
Once the peer group is finalized, the next step is to extract and calculate valuation multiples—ratios that show how the market is currently valuing similar businesses. These multiples are then applied to the target company’s metrics to estimate its value.
There are two main types of multiples used in comps: Enterprise Value multiples and Equity Value multiples.
Enterprise Value Multiples
These are based on the Enterprise Value (EV), which represents the total value of the company’s operations. It includes debt and equity but subtracts out excess cash.
Common EV-based multiples include:
EV / Revenue = Enterprise Value ÷ Revenue
EV / EBITDA = Enterprise Value ÷ EBITDA
EV / EBIT = Enterprise Value ÷ EBIT
These are especially useful in M&A because they reflect the entire capital structure and are not distorted by financing decisions or tax differences. EV/EBITDA is the most widely used multiple in practice, particularly for companies with stable cash flows.
Equity Value Multiples
These are based on the company’s market capitalization, which reflects the value of the shareholders' equity. The most common is:
P / E = Share Price ÷ Earnings Per Share (EPS)
This is a popular ratio in public markets and equity research. However, it’s affected by interest expense, capital structure, and taxes, so it’s often used alongside, but not instead of, EV-based multiples in investment banking.
Which Periods to Use? Historical vs. Forward
Multiples can be based on either historical results (usually the last twelve months, or LTM) or forward estimates (often from the next fiscal year or next twelve months, NTM). Forward multiples are especially common in dynamic industries where past performance doesn’t reflect future potential.
Historical data is typically pulled from financial filings, while forward estimates come from consensus analyst forecasts available on platforms like FactSet, Refinitiv, or EquityRT.
Cleaning the Data
Before using any financial data, it’s important to normalize it. That might include:
- Removing non-recurring gains or losses
- Adjusting for stock-based compensation
- Accounting for leases, restructuring charges, or acquisitions
Clean, consistent inputs are essential. Even small differences in EBITDA definitions can distort the multiples if not properly adjusted.
Once you’ve calculated all the relevant multiples for each company in your peer group, the next step is to apply them to the target company’s financials to generate a valuation range.
How to Apply Comps to Estimate the Target Company’s Value
After calculating the valuation multiples from your peer group, the next step is to apply those multiples to the target company’s financial metrics to estimate its implied value. This is where Comparable Company Analysis turns from research into valuation.
The process is that you take the target company’s metrics—like EBITDA, EBIT, or revenue—and multiply them by the selected range of multiples from your comps set. This gives you an implied enterprise value.
Example
Suppose the target company has $50 million in EBITDA, and the comparable companies are trading at EV/EBITDA multiples between 8× and 10×.
To calculate the valuation range:
Implied Enterprise Value = $50 million × 8 = $400 million
Implied Enterprise Value = $50 million × 10 = $500 million
So, based on comps, the target’s enterprise value falls in the range of $400 to $500 million.
If you want to estimate equity value, you adjust for debt and cash:
Equity Value = Enterprise Value – Net Debt
For example, if the target has $80 million in debt and $20 million in cash, the net debt is $60 million. That means:
Equity Value Range = $400M – $60M to $500M – $60M = $340M to $440M
This range becomes the basis for price discussions in an M&A deal or for setting a price range in an IPO.
How to Frame the Output
Bankers rarely just pick the average or the median multiple blindly. The key is to use judgment. If the target company is growing faster or has better margins than peers, it may deserve a premium multiple. If it’s smaller, riskier, or less profitable, it might be more appropriate to apply the low end of the range.
You can also weight the most relevant peers more heavily, or remove clear outliers from the set if they distort the analysis. The goal is to present a valuation range that feels realistic and is anchored in current market data—but adjusted for the target’s unique traits.
Closing Thoughts
Comparable Company Analysis is simple in theory but nuanced in practice. It gives you a way to value a company based on what the market is already willing to pay for similar businesses—but the strength of your output depends entirely on the quality of your comps set, the cleanliness of your data, and the judgment behind your adjustments.
Used properly, comps provide a quick, market-grounded view of value that’s especially useful in IPOs, equity raises, and deal negotiations. But comps should never be treated as a plug-and-play shortcut. They work best when used alongside other methods, like DCF or Precedent Transactions, to give clients a fuller picture of what their business is worth—and why.
In the next article, we’ll look at Precedent Transactions Analysis—another relative valuation tool, but one that reflects real deal premiums and the strategic motives behind M&A.