comparable company (comps) analysis Exam Questions & Answers 100% Correct!!
2 views 0 purchase
Course
Comparable company
Institution
Comparable Company
comps analysis - ANSWERa company should be valued based on w the market is valuing similar companies at, find a range of multiples that similar peers are trading at and then apply that range to target company to calculate implied value
step 1: select universe of comparable companies - ANSWERconsid...
comparable company (comps) analysis
Exam Questions & Answers 100%
Correct!!
comps analysis - ANSWERa company should be valued based on w the market is valuing similar
companies at, find a range of multiples that similar peers are trading at and then apply that range to
target company to calculate implied value
step 1: select universe of comparable companies - ANSWERconsider industry, size, geography,
business model, and other qualities
step 2: locate the necessary financial information to calculate key multiples - ANSWER- size: market
cap, enterprise value, revenue, share price
- profitability: gross profit, EBITDA, earnings per share
- growth profile: P/E ratio, EV/EBITDA
step 3 - ANSWERfind mean and median multiples of the peer set
step 4: calculate an implied EV or implied equity value - ANSWER- implied enterprise value = median
EV / EBITDA * LTM EBITDA
- implied equity value = median P/E * EPS
step 5: calculate implied share price using implied equity value - ANSWERimplied share price: implied
equity value/ shares outstanding
comps pro #1: market based - ANSWERinformation used to derive valuation reflects market's growth,
fundamental assumptions, risk expectations, and overall sentiment
comps pro #2: relativity - ANSWEReasily measurable and comparable against other companies
comps pro #3: simplicity - ANSWERminimal steps and only a few easy-to-calculate inputs, data is
typically widely available (thanks to reporting standards)
comps pro #4: current - ANSWERvaluation is based on prevailing market data, meaning data can be
updated as frequently as that same day
comps con #1: dependency on the market - ANSWERmultiples can be skewed during periods where
market is overly reactive / emotional (ex: temporary market conditions, bubble-like behavior)
comps con #2: absence of relevant comparables - ANSWERno company is 100% comparable to
another company especially in certain sectors, few or no comparable companies will lead to
ineffective valuation
comps con #3: potential disconnect from other methodologies - ANSWERpossible that a comps
analysis will return a valuation very different from another methodology
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller papersmaster01. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $14.49. You're not tied to anything after your purchase.
