Trading comparables are the valuation method analysts actually run most days, and the one interviewers dig into once you have named the three methods. This deck takes you through the process: choosing the peer group, deciding which multiples matter and why, calculating enterprise value properly, adjusting for the things that make one company's numbers look unlike another's, and reading the range you end up with. It also covers the traps, from mixing enterprise and equity metrics to trusting a multiple without knowing what drives it.
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Card 1 of 15
What is comparable companies analysis, and what question is it actually answering?
Comps value a company by asking what the market pays for similar businesses today.
Comparable companies analysis, or trading comps, values a company by looking at how the stock market prices similar listed companies. You take a set of peers, work out what multiple of earnings or EBITDA each trades at, and apply that range to your company's own numbers. The question it answers is not what the company is worth in some absolute sense but what investors would pay for it today, given what they pay for its rivals. That makes it a market-based method, quick and grounded in real prices, but only as good as the peer group and the day you run it.
Card 2 of 15
How do you choose the peer group, and why is it the step that matters most?
Same industry, similar size, similar growth and margins; the multiple only means something if the peers really are alike.
Start with companies in the same business, selling similar products to similar customers. Then narrow by size, geography, growth rate and margin, because a company growing at 20% a year will trade at a higher multiple than one growing at 3% even if they make the same thing. Five to ten names is typical. The peer group matters most because every number that follows is inherited from it: if you put a fast-growing US software company in the set for a slow UK one, your valuation will be wrong before you calculate anything. Interviewers often ask which peers you would pick and why, not how to do the maths.
Card 3 of 15
What is enterprise value, and how is it different from market capitalisation?
Market cap is the value of the equity; enterprise value is the value of the whole business, debt included, cash netted off.
Market capitalisation is the share price times the number of shares: what the equity is worth. Enterprise value adds net debt, plus minority interests and preferred stock if there are any, and subtracts cash. It is the price of the entire operating business, regardless of who funded it. If you bought all of Bramwell & Co.'s shares for £500m and took on its £200m of debt, the business cost you £700m, minus whatever cash was in the bank. Enterprise value is what you compare across companies with different amounts of debt, because it does not change when a company borrows to buy back shares.
Card 4 of 15
What is EV/EBITDA, and why is it the multiple bankers reach for first?
It compares whole-business value with cash operating profit, so it works across companies with different debt, tax and depreciation.
EV/EBITDA is enterprise value divided by earnings before interest, tax, depreciation and amortisation. Because EBITDA sits above interest, it ignores how the company is financed; because it sits above tax, it ignores differences in tax rates and jurisdictions; because it sits above depreciation, it ignores differences in how old the assets are and how they are accounted for. That makes it the fairest comparison across a peer group, and usable even when a company makes an accounting loss. Its weakness is the same as its strength: it ignores capital spending, so a business that has to reinvest heavily looks better than it is.
Card 5 of 15
When would you use P/E, EV/Sales, or EV/EBIT instead of EV/EBITDA?
P/E for stable, profitable companies where equity investors think in earnings; EV/Sales when there are no profits; EV/EBIT when capital intensity differs.
P/E is the multiple equity investors and the financial press use, and it works well for mature, profitable companies with similar capital structures, like banks, where EBITDA is meaningless anyway. EV/Sales is the fallback for companies with no profits yet, like early-stage tech or a turnaround, though it says nothing about whether the sales will ever make money. EV/EBIT is better than EV/EBITDA when peers differ in how much they spend on assets, because depreciation is a real cost of running a capital-heavy business. Some industries have their own: price per subscriber, EV per bed, EV per tonne of capacity.
Card 6 of 15
What does LTM mean, and why do analysts show both LTM and forward multiples?
LTM is the last twelve months of actual results; forward multiples use next year's forecasts, which is what buyers actually pay for.
LTM, last twelve months, means the four most recent quarters added together, so the figure is actual and up to date rather than tied to a financial year end. Forward multiples divide today's value by forecast earnings for the next year or two, usually the average of analysts' estimates. Investors pay for the future, so forward multiples are usually the more relevant, especially for fast-growing companies whose LTM numbers understate them. Showing both makes the growth visible: a company at 20x LTM and 14x forward is expected to grow earnings by about 40%.
Card 7 of 15
What does it mean to normalise or adjust a company's earnings before running comps?
Strip out one-off items so the multiple reflects what the business earns in a normal year.
Reported earnings often include things that will not repeat: a restructuring charge, a gain on selling a building, litigation costs, an impairment. If Calder Foods reported EBITDA of £50m including a £15m one-off legal settlement, its underlying earning power is £65m, and applying a peer multiple to £50m would undervalue it. Normalising means removing those items so every company in the set is compared on a recurring basis. Companies publish their own adjusted figures, but they tend to be generous about what counts as one-off, so analysts form their own view.
Card 8 of 15
You have a peer range of 8x to 12x EV/EBITDA. How do you decide where in the range your company sits?
Compare growth, margins, scale and risk against the peers; better than the median means above the median.
The range is the starting point, not the answer. Line your company up against the peers on the things that drive multiples: revenue growth, margins, size, market position and risk. If it is growing faster with better margins than the median peer, it deserves a multiple toward the top of the range; if it is smaller, slower or riskier, toward the bottom. Then apply a narrower band, say 9x to 11x, to the company's EBITDA to get an enterprise value range, and subtract net debt to get equity value. Interviewers care about this reasoning far more than the arithmetic.
Card 9 of 15
Why do comps and a DCF often give different answers, and which do you trust?
Comps say what the market pays now; a DCF says what the cash flows are worth; the gap is information, not an error.
A DCF values the company from its own forecast cash flows and a discount rate, so it reflects your assumptions and is indifferent to market mood. Comps reflect what investors are actually paying today, including whatever optimism or fear is in the market. When the DCF comes in well above comps, either your forecasts are generous or the sector is out of favour; when it comes in below, the reverse. Neither is simply right. Bankers show both, usually as a football field chart, and use the overlap as the range. Explaining the difference is the mark of understanding both.
Card 10 of 15
What is the difference between trading comps and precedent transactions?
Trading comps use stock-market prices for similar companies; precedents use prices paid in actual takeovers, which include a control premium.
Trading comparables look at how similar listed companies are priced by the market day to day, which is the value of a minority stake. Precedent transactions look at what acquirers paid to buy whole companies in past deals. Buyers pay a premium for control, typically 20% to 40% over the share price, because they can change how the business is run and capture synergies. So precedents give higher multiples than trading comps, and are the right benchmark when valuing a company for sale, while trading comps are the benchmark for where the shares should trade.
Card 11 of 15
Why can a company trade at a lower multiple than its peers without being cheap?
A low multiple usually reflects lower growth, higher risk, worse governance or a reason the market knows and you do not yet.
A multiple is a price per unit of earnings, and the market lowers it when it expects those earnings to grow more slowly, to be more volatile, or to be less trustworthy. Northbay Logistics at 6x when peers are at 9x might have a customer that provides half its revenue, a founder who controls the board, a pension deficit, or a history of missed guidance. Sometimes the discount really is a mispricing, which is what value investors hunt for, but the first assumption should be that the market has a reason. Saying that in an interview shows judgement rather than a calculator.
Card 12 of 15
How do you handle a company in the peer set that has a very different financial year or reports in another currency?
Calendarise the numbers to the same twelve months and convert at a consistent exchange rate before comparing.
If one peer's year ends in March and another's in December, their annual figures cover different periods and different economic conditions, so you calendarise: use quarterly figures to rebuild each company's earnings over the same twelve months. If a peer reports in dollars and your company in pounds, convert the earnings and the market data at consistent rates, usually the average rate for the period for income statement items and the spot rate for balance sheet items. Multiples themselves are currency-free, since numerator and denominator are in the same currency, but the inputs must be built consistently.
Card 13 of 15
Talbrook Capital asks for a quick comps valuation of Bramwell & Co. Peers trade at 10x EBITDA. Bramwell has EBITDA of £80m, debt of £300m, cash of £50m and 100m shares. What is the share price implied?
Multiply to get enterprise value, subtract net debt to get equity value, divide by shares: £5.50.
Enterprise value is 10 times £80m, which is £800m. Net debt is £300m of debt minus £50m of cash, which is £250m. Equity value is £800m minus £250m, which is £550m. Divided by 100 million shares, that is £5.50 a share. The interviewer is checking that you know to subtract net debt rather than gross debt, and that you subtract it at all: applying 10x and dividing straight by shares would give £8.00, which is the classic error. If Bramwell had preferred stock or a minority interest, those would come off too.
Card 14 of 15
What is a football field chart, and what is it for?
One chart showing the valuation range from every method side by side, so the reader sees where they agree.
A football field is a horizontal bar chart with one bar per valuation method: trading comps, precedent transactions, DCF, sometimes an LBO analysis and the 52-week share price range. Each bar runs from the low end of that method's range to the high end. Laid side by side, the bars show where the methods overlap, which is usually taken as the most defensible valuation range, and where one method is an outlier, which prompts a question about why. It is the last page of most valuation sections in a pitch book and the picture a managing director looks at first.
Card 15 of 15
An interviewer says: walk me through how you would value Ferrow Retail using comps. Give the answer in order.
Peers, metrics, multiples, adjustments, range, then equity value per share, with one sentence on the limits.
First, choose five to ten listed retailers similar in size, format, geography and growth. Second, gather each one's enterprise value and equity value, and their LTM and forward EBITDA, EBIT and net income, normalised for one-offs. Third, calculate EV/EBITDA, EV/EBIT and P/E for each, and look at the median and the range. Fourth, judge where Ferrow sits in that range on growth, margins and risk. Fifth, apply the chosen multiples to Ferrow's own numbers for an enterprise value range, subtract net debt, and divide by shares for a price per share. Finish by noting that comps reflect today's market and should be cross-checked against a DCF and precedents.
Reading is not the same as remembering. Study this deck with scheduled review so the cards come back before you forget them.