Comparable Valuation PDF

What Is Comparable Company Analysis? Comparable Company Analysis (CCA) is a financial analysis method Comparable Valuation It is used to value a company by comparing it to other similar companies in the same industry. The...

What Is Comparable Company Analysis? Comparable Company Analysis (CCA) is a financial analysis method Comparable Valuation It is used to value a company by comparing it to other similar companies in the same industry. The primary purpose of Comparable Company Analysis is  to determine the relative value of a company by comparing its financial performance and  valuation multiples to those of similar companies in the same industry. By analyzing the target company's valuation relative to its peers  analysts can identify whether the company is overvalued, undervalued, or fairly valued in  Comparable valuation is a market approach to valuation It use real market data to calculate value of a company, by analyzing its peer group. Comparable The comparable chosen are typically Valuation  Market leaders,  peers within similar business category,  suppliers, clients, or any entity within a business model and  operational characteristics similar to the company we value How do we do it? It values by combining three data points:  Projected revenues or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).  Comparable’ revenue multiple, which is the ratio  Common Valuation Metrics by Stage Within comparable, there are different valuation ratios that can be used to value a company. Factors that determine which is the more appropriate ratio to use include  The stage of the company,  Size, Comparable  Scale,  Profitability Valuation  and industry, among other factors. Early-Stage Companies:  the business life cycle are typically still in the growth phase and  Unlikely to have achieved profitability.  Consequently, it is difficult to value these companies based on earnings. One commonly used metric to value such companies is  valuation as a multiple of revenue.  Certain industry-specific ratios are also often used at this stage, such as o valuation as a multiple of user base, o valuation as a multiple of subscribers and o valuation as a multiple of value of merchandise sold.  Mid-Stage Companies: For companies in the middle stage of the life cycle,  growth has typically slowed down a bit compared to what they would have witnessed during the early stage, and  they likely show some evidence of profitability. Use revenue multiple Comparable  EBITDA (earnings before interest, taxes, depreciation and Valuation amortization) or  EBIT (earnings before interest, taxes) or  Any other metric of profitability. (CF, P&L, …) Late-Stage Companies: In the mature stage of the life cycle,  growth has become steady, and  Business has likely become more predictable with stable margins and profitability.  Such companies are typically valued based on profitability or returns. o Price as a multiple of earnings is an often-used ratio at this stage.  The comparable valuation can simply be determined by comparing a firm to its key rivals, or at least Comparable those rivals that operate similar businesses Valuation The steps for valuation based on comparable are as follows: 1. Select and calculate the price multiple 2. Select the benchmark and compute its price multiple. 3. Estimate the value of the company’s stock using the benchmark multiple. Types of Comp Models The comparable Common market multiples include the following: enterprise-value-to-sales (EV/S),  enterprise multiple,  price-to-earnings (P/E),  price-to-book (P/B), and  price-to-free-cash-flow (P/FCF).  P/NAV = Market Capitalization / [NPV of all Mining Assets –  COMPARABLE COMPANY VALUATION Enterpris Free Cash Market Net e Value P/E Ratio P/R Ratio P/B Ratio Flow Company Cap (in Margin (MRQ) (in (TTM) (TTM) (TTM) (TTM) (in billions) (TTM) billions) millions) $19.80 Comp 1) $13.31 16.95 1.25 2.33 0.076 $844 3 $60.18 Comparable Comp. 2) $48.83 9 7.35 0.86 2.73 0.118 $7,376 Valuation $48.15 Comp. 3) $33.29 21.89 2.11 1.27 0.090 $1,253 0 $60.40 Comp. 4) $52.52 24.35 4.65 3.89 0.191 $390 5 Comp. 5) $7.44 $9.428 6.56 0.85 1.73 0.132 $740 average of Selected Overall, $39.59 Comb 1 has15.42 a relatively fair $31.08 1.94 2.39price 0.121 compared to $2,121 Multiple 5 similar industry leaders Its valuation will likely be s negatively impacted by its low net margin compared to other companies; however, it has free cash flow to address  Important Considerations It is important to note that it can be difficult to find truly comparable companies and transactions to value Comparable an equity. Valuation This is the most challenging part of a comparable analysis. For instance, in the example above, only Comp. 5 is relatively close in size to comp1. The other three industry leaders are nearly three times the operational size and likely have the scale and magnitude to operate differently. If a firm is growing rapidly, a historical valuation will not be overly accurate. What matters most in valuation is making a reasonable estimate of future market multiples. If profits are projected to grow faster than rivals, the  Essential Data Points in Comps Analysis Comps analysis requires careful consideration of key data points, including: Company Name: Essential for context and relevance in the analysis. Comparable Company Symbol: Important for public companies, aiding in information validation. Valuation Valuation Metric: Use the latest funding round valuation for private companies, and Enterprise Value (EV) or market capitalization for public companies. Revenues: The most recent annual revenues or estimates for private companies, EBITDA: Typically for public companies, using TTM EBITDA, acknowledging the challenge of obtaining this data for private companies. Beta: A measure of investment volatility relative to the market, used in specific valuation methods such as CAPM. Market Capitalization and Debt: These are crucial for  The main valuation methods for mining companies are  I Comparable Valuation ncome Approach. Based on expected benefits, usually in the fo rm of discounted cash flow.  Market Approach. Based on actual or comparable transactions.  Cost Approach. Based on principle of contribution to value thro ugh past exploration expenditures.  Enterprise Value Per Resource (EV/Resource). Based on the rati o of enterprise value to mineral resources.  Net Present Value (NPV). Based on the present value of future cash flows from the project. : Valuation methods for mineral properties