Business, Legal & Accounting Glossary
adjective possible to compare
Example The two sets of figures are not comparable.
Usage which is the nearest company comparable to this one in size? which company is most similar in size to this one?
Usage on a comparable-store basis when comparing similar stores belonging to different companies possible to compare
A comparative, sometimes known as a “comp,” is a reference to a comparable public company or comparable transaction that is utilised in market valuation for a similar firm. The implied valuation multiples derived from public company market capitalization or the enterprise value of a disclosed transaction are applied to the metric of a comparable subject firm to calculate its value.
The multiple of EBITDA, EBIT, and free cash flow are some of the most popular comparables (FCF). Typically, the subject company’s valuation will not be driven solely by the application of this similar multiple, but rather as a reasonability check once a comprehensive valuation has been performed.
Although information for a number of comparable public firms and transactions is readily available, it is uncommon to discover a real comparable for industry, size, and geography. Even if both companies operate in the same industry and region, a billion-dollar public corporation will not be a genuine comparison to a $50-million-dollar private company. Due to the size premium that a billion-dollar company would attract, a valuation discount to the assumed comparable multiple is frequently applied.
When using an acceptable market value multiple, valuators will utilise a great deal of judgement and experience. Furthermore, due to a lack of information on private company transfers, it is difficult to obtain real comps for mid-market enterprises.
Comp
Multiple
Enterprise Value
Valuation Approach
Equity Value
Market Capitalization
Earnings Before Interest Taxes Depreciation and Amortization
TTM Multiple
Valuation Premium
Valuation Discount
Free Cash Flow
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This glossary post was last updated: 26th January, 2022 | 0 Views.