Chapter 9

Sizing Up the Industry

IN THIS CHAPTER

check Creating a comparison set of peers for industry analysis

check Seeing how companies differ from one another in key areas

check Comparing and contrasting companies’ growth and other metrics

check Measuring differences of companies’ profitability and valuation

check Understanding why investment banking requires knowledge of the complete industry

The theory of relativity is a mind-blowing concept from Albert Einstein that says, among other things, that space and time are best understood in context to each other. The importance of comparison isn’t just heady science.

Consider what happens in a classroom. If a student gets an A on a paper, she may be overjoyed until she finds out that all the other students got A’s, too. Her A isn’t as meaningful when, in context, it’s not all that unusual. The dreaded “bell curve” is a way to separate the average students from the truly exceptional ones.

The importance of comparison doesn’t stop in the classroom. Even the super-rich ...

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