Comparable company analysis (comps) values a company by comparing its financial metrics against similar publicly traded companies using valuation multiples such as EV/EBITDA, EV/Revenue, and P/E ratio. It provides a market-based valuation reference point and is one of the three primary valuation methodologies alongside DCF and precedent transactions.
In Depth
Comparable company analysis is the most intuitive valuation method because it answers: "What are similar companies worth in the market today?" By applying peer multiples to the target company's financial metrics, it derives an implied valuation range.
The process involves selecting comparable companies (similar industry, size, growth, and business model), gathering their financial data and valuation multiples, calculating the relevant multiples (EV/EBITDA, EV/Revenue, P/E), applying these multiples to the target company's financial metrics, and deriving an implied valuation range.
Peer selection is the most important and subjective step. The ideal comparable company has: the same industry and business model, similar size (revenue, market cap), similar growth rate, similar profitability profile, and similar geographic focus. In practice, perfect comparables rarely exist, so analysts select the closest matches and note the differences.
Common valuation multiples include: EV/EBITDA (most common for profitable companies), EV/Revenue (for high-growth or loss-making companies), P/E ratio (for profitable companies with stable tax rates), and EV/ARR (specifically for SaaS businesses).
For UK FP&A teams, comparable analysis should consider whether to use UK-only peers (more comparable on regulatory and market factors) or global peers (larger sample size but less comparable conditions). Currency and accounting standard differences between UK GAAP and IFRS/US GAAP may also require adjustments.
Real-World Example
A UK SaaS company at £5M ARR seeks a Series B valuation. The FP&A team identifies 8 comparable listed SaaS companies with similar growth rates (40-60% YoY) and business models. The peer group trades at 8-14x EV/ARR with a median of 11x. Applying the range to £5M ARR gives an implied valuation of £40M-£70M, with a median of £55M. Adjusting for the company's faster growth (55% vs peer median of 45%) and higher NRR (125% vs 115%), the FP&A team argues for a valuation at the upper end of the range.
Related Terms
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a profitability metric t...
The price-to-earnings (P/E) ratio compares a company's share price to its earnings per share, indica...
Enterprise value (EV) represents the total value of a business, combining market capitalisation with...
A DCF (Discounted Cash Flow) model values a company or project by projecting future free cash flows ...
A merger model analyses the financial impact of one company acquiring another, projecting the combin...
Stop wrestling with spreadsheets. Grove FP gives your finance team a purpose-built platform for budgeting, forecasting, and financial modelling — designed for UK businesses.
FAQ