Comparable company analysis

This is not a full company valuation training course, but the two most common ways of valuing businesses are (i) valuing a business as a multiple of its earnings (= relative or comparable company analysis) or (ii) valuing a company as the sum of its discounted cash flows (= DCF valuation).

Comparable company valuation

Companies are often valued as a multiple of their earnings. A buyer might take a business’s earnings and multiply those to calculate the debt free cash free value used in their offer letter.

Comparable company valuation: what multiple to use? The role of past transactions

A buyer might survey comparable company transactions (i.e. past business sales), looking at the relationship of deal valuation to the business’ earnings. Averaging those value/ earnings multiples would help the buyer judge what multiple should be used in the valuation of the company they were looking to purchase.

Picking a multiple for comparable company valuation. The role of share market information

As well as looking at past transactions, a buyer could also survey businesses listed on the share market (each with a published share price). Averaging value/ earnings multiples for share market listed businesses would also help the purchaser determine what multiple to use to value the company they were looking to buy.

Next the valuation course extract looks at the use of EBITDA multiples in comparable valuation.