Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity

CHAPTER 9

Comparable Company Analysis

As we discussed earlier, the comparable company analysis (“comps”) compares companies that are similar in size, product, and geography to the company we are valuing. It is not always easy to find good comparable companies, but we have some recommended sources:

• Company financials. Often, the company lists who it believes its competitors are in the market. Performing a quick word search on “competitors” or “competition” in the 2012 Walmart annual report, for example, reveals the following note:

The Retail Industry

We operate in the highly competitive retail industry in all of the countries we serve. We face strong sales competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets. Many of these competitors are national, regional or international chains, as well as internet-based retailers and catalog businesses. We compete with a number of companies for prime retail site locations, as well as in attracting and retaining quality employees (whom we call “associates”). We, along with other retail companies, are influenced by a number of factors including, but not limited to: general economic conditions, cost of goods, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, interest rates, customer preferences, unemployment, labor costs, inflation, deflation, currency exchange fluctuations, fuel and energy prices, weather patterns, climate ...