Comparable Companies

A market-based valuation method: calculate the valuation multiples (revenue, EBITDA, earnings, or operational metrics) of publicly traded companies that are in a similar industry, serve similar customers, and are of a similar size, then apply the median or average of those multiples to the subject company. One of three main valuation methods alongside precedent transactions and DCF Analysis. The key difference from precedent transactions: comps use the value of companies in the stock market; precedents use the values of acquired companies.

The method reflects a core truth in valuation: “it’s more art than science,” and value is ultimately “dependent on how much someone is willing to pay for it.”

Where this appears

• How to Determine What a… (tweet) — @AliTheCFO’s primer on the three main company valuation methods.