What is the process for Comparable Companies Analysis?
Comparable companies' analysis can be defined as comparing one share over other shares in the same industry using valuation multiples. This method can be done using the steps:
Firstly, gather financial information about the company. This is usually composed of the three primary financial statements.
Secondly, project the income statements to 3 years, five years, or more.
Thirdly, compute the Equity and Enterprise Value
Then, determine the total number of diluted shares
After that, compute forecasts and valuation multiples
Next, depending on the valuation multiples, compute the fair value of each share.
Lastly, examine results and make recommendations.