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Technical 8 - Trading Comps questions with verified solutions
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Technical 8 - Trading Comps questions with verified solutions
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Technical 8 - Trading Compsquestions with verified
solutions 2024-2025
What are the pros of using Comparable Companies Valuation? -
answer - quick and easy
- reflects current market valuation level of similar companies
- fewer assumpotions than DCF
- Can be used with limited financial data of target company
What are the cons of using Comparable Companies Valuation? -
answer - may be hard to find comparable companies
- influenced by short-term market fluctuations
- P/E multiple is influenced by capital structure
- Not applicable for companies with negative NI or EBITDA
- unable to reflect the true intrinsic value of the company
What are the 3 criterias to find comparable companies universe? -
answer 1. Same Industry
2. Same listing venue - different venues have different values of a
company
3. Same Size - will influence the valuation of a company
What scenarios can you not use comparable companies for
valuation? - answer 1. Pure play - business is too new (Tesla)
2. No listed comparable companies (SpaceX IPO)
3. Conglomerate - revenue comes from different industry sources
(Berkshire Hathaway, use Method - Sum of the Parts)
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