Comparable Companies (Comps)
A relative valuation method that values a company using trading multiples of similar public companies, such as EV/EBITDA or P/E. Distinct from precedent transactions, which use multiples paid in past M&A deals.
Why Comparable Companies (Comps) matters in interviews
Comps are the valuation method most used in practice and most casually assembled, so interviewers probe them to see whether you can defend a peer set. The real question is never "what is a comp" — it is "why is this company comparable and that one is not".
How it works in practice
You assemble a set of publicly traded peers with similar business models, size, growth, margins and geography, calculate trading multiples for each (usually EV/EBITDA, EV/EBIT, EV/Revenue and P/E), take the median and quartiles, and apply that range to the target's own metrics.
The median matters more than the mean because a single outlier peer distorts an average badly in small sets. Practitioners typically show minimum, 25th percentile, median, 75th percentile and maximum.
Multiples must be calibrated on a like-for-like basis: calendarised to the same fiscal year end, and using forward figures (NTM or next-fiscal-year) rather than trailing where the sector is growing.
What candidates get wrong
- Building a peer set on industry classification alone. A high-growth software company and a mature one in the same SIC code are not comparable.
- Failing to adjust for one-off items in the EBITDA of either the peers or the target.
- Not being able to explain why comps typically produce lower values than precedent transactions — the answer is the control premium embedded in acquisition prices.
Comparable Companies (Comps): frequently asked questions
Why do comparable companies usually value a business lower than precedent transactions?
Because trading comps reflect the price of a minority stake in the public market, while precedent transactions reflect the price paid for control of a whole company. Acquirers pay a control premium — historically often in the 20-30% range — for the ability to direct the business and to capture synergies.
What makes a good comparable company?
Similarity in the drivers of value rather than in industry label: comparable growth rate, margin profile, capital intensity, end-market exposure, geography and scale. A defensible comps set is usually small and tightly argued rather than large and inclusive.
Go deeper
This term comes up constantly in valuation interviews and on the desk.
DCF interview questions guideRelated Valuation terms
Go further than reading
The written material is free. These are the ways to get it applied to your own work.
CV Review by a Human
Written margin-note feedback on structure, impact bullets and ATS-readability. Reviewed by Suro, not an AI score.
$25 48h turnaround
Cover Letter Review by a Human
Line-by-line review of argument, tailoring and tone, with a rewritten opening as a worked example.
$50 48h turnaround
Inner Circle
Membership: premium tools, role intros, the private community and members-only intel.
$79 /month
Browse the full glossary — 150+ finance recruiting and technical terms, in plain English.