Comparable company analysis — commonly known as “trading comps” or simply “comps” — is one of the three core valuation methodologies in investment banking, alongside the discounted cash flow (DCF) analysis and precedent transactions analysis. If you are recruiting for investment banking, you need to understand how comps work, why bankers use them, and how to walk through the methodology in an interview setting.
In this guide, we will cover everything you need to know about comparable company analysis — from selecting the right peer group to spreading comps to interpreting multiples. Whether you are preparing for a first-round interview or a superday, this is essential knowledge.
What Is Comparable Company Analysis?
Comparable company analysis is a relative valuation methodology that values a company by comparing it to similar publicly traded companies. The core idea is straightforward: similar companies should trade at similar valuation multiples. By identifying a group of peer companies, calculating their trading multiples, and applying those multiples to the target company’s financial metrics, you can estimate what the target company is worth.
This approach is considered a “market-based” valuation because it relies on what the public markets are currently paying for comparable businesses. It reflects real-time investor sentiment, growth expectations, and risk perceptions — which is both a strength and a limitation.
Why Bankers Use Comps
Trading comps are the most commonly used valuation methodology in investment banking for several reasons:
- Market-driven: Comps reflect what investors are actually willing to pay right now, making them grounded in real market data.
- Speed: Once you have a peer set, comps can be built quickly — much faster than a full DCF model.
- Simplicity: The methodology is intuitive and easy to explain to clients, boards of directors, and other stakeholders.
- Benchmarking: Comps provide a useful sanity check against other valuation methodologies.
That said, comps are rarely used in isolation. Bankers typically present a “football field” chart showing valuation ranges from comps, precedent transactions, and a DCF to triangulate a fair value range. Understanding how enterprise value and equity value relate to each other is foundational to interpreting these different approaches.
Step-by-Step: How to Build Trading Comps
Step 1: Select the Peer Group
The most important — and most subjective — step in comparable company analysis is selecting the right peer group. The goal is to identify publicly traded companies that are similar to your target in terms of:
- Industry and sub-sector: Companies should operate in the same or closely related industries.
- Size: Revenue, EBITDA, and market capitalization should be in a similar range. A $500 million revenue company is not a great comp for a $50 billion revenue company.
- Growth profile: Companies growing at 5% per year should not be compared to companies growing at 30% per year without acknowledging the difference.
- Profitability and margins: Companies with similar margin structures are more comparable.
- Geography: Companies operating in similar geographies and regulatory environments are preferred.
- Business model: Recurring revenue businesses should be compared to other recurring revenue businesses, not project-based businesses.
In practice, you will often start with 15-20 potential comps and narrow down to 8-12 that are the best fit. The peer group does not need to be perfect — there is almost never a set of companies that are identical to the target — but you should be able to justify why each company is included.
Step 2: Gather Financial Data
For each comparable company, gather the following data from public filings (10-Ks, 10-Qs), equity research, and financial databases like Capital IQ or Bloomberg:
- Current share price, shares outstanding, and market capitalization
- Net debt (total debt minus cash and cash equivalents)
- Revenue, EBITDA, EBIT, and net income (both historical and projected)
- Any non-recurring items that need to be adjusted
Understanding how the three financial statements link together is essential for correctly pulling and normalizing this data.
Step 3: Calculate Enterprise Value and Equity Value
For each comp, calculate both equity value and enterprise value:
- Equity value = Share price x Diluted shares outstanding
- Enterprise value = Equity value + Net debt + Minority interest + Preferred stock – Associates/JVs
Getting the enterprise value bridge right is critical. Mistakes here will throw off every multiple you calculate downstream.
Step 4: Spread the Comps — Calculate Key Multiples
“Spreading comps” means calculating valuation multiples for each peer company. The most commonly used multiples in investment banking are:
Enterprise value multiples (capital-structure neutral):
- EV/Revenue: Used for high-growth or unprofitable companies where earnings-based multiples are not meaningful.
- EV/EBITDA: The most widely used multiple in investment banking. It normalizes for differences in capital structure, tax rates, and depreciation policies.
- EV/EBIT: Similar to EV/EBITDA but accounts for depreciation, useful when capital intensity differs meaningfully across the peer set.
Equity value multiples:
- P/E (Price-to-Earnings): The most intuitive equity multiple. Reflects what investors pay per dollar of net income. Affected by capital structure, which is why EV/EBITDA is often preferred.
- P/B (Price-to-Book): Common for financial institutions where book value is a meaningful metric.
Most bankers focus on EV/EBITDA and P/E as the primary multiples, with EV/Revenue as a supplement for high-growth or pre-profit companies. Multiples are typically calculated on both a last-twelve-months (LTM) and next-twelve-months (NTM) basis, with forward multiples generally considered more relevant because they reflect expected performance.
Step 5: Determine the Appropriate Multiple Range
Once you have spread the comps, analyze the range of multiples across the peer set. Look at the mean, median, 25th percentile, and 75th percentile. The median is generally the most reliable central tendency measure because it is less affected by outliers.
Consider whether the target company deserves a premium or discount to the peer median based on its relative growth, profitability, market position, or other qualitative factors.
Step 6: Apply the Multiple to the Target Company
Multiply the selected multiple (or range of multiples) by the target company’s corresponding financial metric to derive an implied enterprise value or equity value. For example, if the peer median EV/EBITDA is 12x and the target’s EBITDA is $200 million, the implied enterprise value is $2.4 billion.
Convert enterprise value to equity value (or vice versa) and then to an implied share price to make the output actionable.
Pros and Cons of Comparable Company Analysis
Advantages
- Based on real market data — no need for long-term cash flow projections
- Reflects current market sentiment and conditions
- Relatively quick and easy to update
- Widely understood by all parties in a deal process
Disadvantages
- Assumes the market is correctly pricing comparable companies — if the entire sector is overvalued or undervalued, comps will be misleading
- Difficult to find truly comparable companies, especially for unique or niche businesses
- Does not capture company-specific factors like a pending product launch or a regulatory overhang
- Subject to short-term market volatility — comps can swing significantly based on market conditions rather than fundamentals
- Does not include a control premium, unlike precedent transactions — so comps typically produce a lower valuation than precedent transactions for the same company
Comps vs. DCF vs. Precedent Transactions
In an interview, you may be asked to compare the three core valuation methodologies. Here is a quick summary:
- Comps tell you what the market is paying for similar companies today. They reflect relative value and market sentiment.
- DCF tells you what a company is worth based on its projected future cash flows, discounted back at the WACC. It reflects intrinsic value independent of market conditions.
- Precedent transactions tell you what acquirers have historically paid for similar companies. They include a control premium and reflect strategic value.
Bankers typically use all three to arrive at a valuation range rather than relying on any single methodology. For a deeper dive into the DCF approach, check out our guide on how to walk through a DCF.
Common Comps Interview Questions
“Walk me through how you would build a comparable company analysis.”
Use the six-step framework: select peers, gather financials, calculate EV and equity value, spread multiples, determine the appropriate range, and apply to the target.
“Why do we use EV/EBITDA instead of P/E?”
EV/EBITDA is capital-structure neutral — it is not affected by differences in leverage, tax rates, or D&A policies across companies. P/E is influenced by all of these factors, making it a less clean comparison across companies with different capital structures. However, P/E is still useful when companies have similar leverage profiles or when equity-level returns matter.
“When would you use EV/Revenue instead of EV/EBITDA?”
EV/Revenue is used when companies are not yet profitable (negative EBITDA makes EV/EBITDA meaningless) or when comparing companies at very different stages of profitability. It is commonly used for early-stage technology and biotech companies.
“What are the most important criteria for selecting comparable companies?”
Industry, size, growth rate, margin profile, geography, and business model. No peer set is perfect, but you should be able to articulate why each company is included and acknowledge material differences.
Tips for Interview Success
Comparable company analysis is a topic that comes up in nearly every investment banking interview. The good news is that the concepts are intuitive once you have practiced them. Focus on understanding the “why” behind each step rather than just memorizing mechanics.
If you are just starting your interview preparation, our free course covers all the major technical topics, including comps, DCFs, and LBOs. For a quick-reference study guide, download our technical cheatsheet. And if you want to see the results our students achieve, take a look at our testimonials page.
Strong technicals are critical, but they are only one piece of the puzzle. You also need a standout resume, a thoughtful cover letter, and a well-executed networking strategy. If you are at a non-target school, these elements become even more important.
Want Personalized Interview Coaching?
At Wall Street Mastermind, we have helped over 2,400 students land offers at every bulge bracket and elite boutique bank on Wall Street. Our coaching team includes former global heads of recruiting from JP Morgan, UBS, Credit Suisse, Bank of America, and Lehman Brothers — people who know exactly what banks are looking for. Book a free strategy call to learn how we can help you prepare.
Related Articles
- Walk Me Through a DCF — Investment Banking Interview Question
- Enterprise Value vs. Equity Value
- How to Calculate WACC — Step-by-Step Guide
- How to Explain an LBO — Leveraged Buyout Interview Question
- How the Three Financial Statements Link Together
- Investment Banking Resume Guide
Follow Wall Street Mastermind
Stay up to date with the latest investment banking recruiting tips, technical guides, and career advice:
- YouTube
- TikTok
- X (Twitter)
- Podcast: Apple Podcasts | Spotify | SoundCloud
