Mastering Comparable Company Valuation: Theory, Application, and Excel

🔍Comparable company valuation involves valuing an asset by comparing it to similar assets.

📊Key steps in the valuation process include selecting comparable companies, gathering relevant data, and calculating multiples.

📈Multiples such as EV/Revenue and P/E ratio are commonly used in comparable company valuation.

📐Benchmarking multiples helps in determining the valuation range for the target company.

💡Comparable company valuation is a simple and widely used valuation method, but it has limitations and should be used alongside other methods.

What is the basic idea behind comparable company valuation?

—Comparable company valuation involves valuing an asset by comparing it to similar assets. It uses multiples such as EV/Revenue and P/E ratio to determine the asset's value based on market norms.

How do you select comparable companies?

—Comparable companies should be in the same industry, operate in similar market regions, and have similar target customers. Financial factors like size, profitability, and credit profile should also be considered.

What are some commonly used multiples in comparable company valuation?

—Some commonly used multiples in comparable company valuation include EV/Revenue, EV/EBITDA, and P/E ratio.

Why is benchmarking multiples important in comparable company valuation?

—Benchmarking multiples helps in determining the valuation range for the target company. It provides insights into how the target company's valuation compares to its peers in the market.

What are the limitations of comparable company valuation?

—While comparable company valuation is a simple and widely used method, it has limitations. It relies on market norms and can be influenced by market conditions. It may not be suitable for companies with unique characteristics or industries with limited comparable companies.

00:00This video explains the process of comparable company valuation.

04:08The key steps in the valuation process are selecting comparable companies, gathering relevant data, and calculating multiples.

13:04Benchmarking multiples helps in determining the valuation range for the target company.