Walk me through a comparable company analysis.

A comparable company analysis values a company based on how similar public companies trade today. There are four steps. First I pick the peer group. I want companies in the same industry with a similar business model, and then I narrow by size, growth, margins and geography. Second, I gather the financials for each peer. That's market cap and net debt to get enterprise value, plus revenue, EBITDA and net income. Third, I calculate the multiples. The main ones are EV to EBITDA and P/E. Then I take the median of the group. Fourth, I apply those multiples to my company. Say the peer median is 10 times EBITDA and my company has $50 million of EBITDA. That's an enterprise value of $500 million. If it has $100 million of net debt, the equity value is $400 million. That gives me a market-based value that I'd compare with other methods.

A comparable company analysis values a company based on how similar public companies trade today. It's a relative method, so it tells me what the market would pay, not what the business is worth on its own cash flows. There are four steps. First I pick the peer group. I want companies in the same industry with a similar business model, and then I narrow by size, growth, margins and geography. I'd rather have six close peers than fifteen loose ones, because the answer is only as good as the peers. Second, I gather the financials for each peer. That's market cap and net debt, with preferred stock and minority interest where they exist, to get enterprise value, plus revenue, EBITDA and net income. I'd use the last twelve months and next year's estimates, and I'd strip out one-time items so every peer is on the same basis. Third, I calculate the multiples. The main ones are EV to EBITDA and P/E. Then I take the median of the group, not the average, because one outlier can drag an average. Fourth, I apply those multiples to my company. Say the peer median is 10 times EBITDA and my company has $50 million of EBITDA. That's an enterprise value of $500 million. If it has $100 million of net debt, the equity value is $400 million. A P/E multiple would go on net income and give equity value directly. I'd show a range, so 9 to 11 times gives $450 million to $550 million of enterprise value. That gives me a market-based value that I'd compare with other methods. Then I'd ask where in the range my company belongs. If it grows faster or earns better margins than the peers, it deserves the top end. And comps reflect how the market feels today, with no control premium, so they can be too high or too low along with the market.