Comparative Analysis
Determining a company’s fair value by benchmarking against similar companies is a popular and straightforward approach. Below are the main steps and considerations:
- 1) Identify Comparable Companies Find public companies in the same industry and with a similar business model. Pay attention to size, growth rate, and geographic focus. The closer the match, the more reliable your comparison.
- 2) Gather DataCollect key financials (Revenue, EBITDA, Net Income, etc.) and market data (e.g., Market Cap). Our platform compiles public SEC filings, saving you time.
- 3) Select Relevant Multiples Common ratios include P/E (Price-to-Earnings), P/S (Price-to-Sales), and EV/EBITDA. Choose the multiple(s) that best fit your industry and maturity.
- 4) Calculate the Average Multiples Use the median or mean multiple from your comparables. Watch out for outliers that could distort the average.
- 5) Apply the Multiples to Your Company Multiply your financial metrics by the benchmark multiples to estimate your own market value. Adjust for any significant differences in growth, risk, or capital structure.
Comparative Analysis Example
Suppose we’ve identified three comparable public companies and collected their EV/EBITDA multiples. Here’s a simplified table:
| Company | Ticker | EV/EBITDA |
|---|
| Netflix | NFLX | 25.0x |
| Amazon | AMZN | 22.0x |
| Disney | DIS | 18.0x |
| Average EV/EBITDA | (25 + 22 + 18) / 3 = 21.7x |
If Your Company has an EBITDA of $50 million, applying the average multiple (21.7×) suggests an Enterprise Value of ~$1.085 billion. Of course, you should adjust for any unique aspects of your business—such as higher growth potential or differing risk factors—that might make you worth more or less than the straight average.
