Glossary
Comparable Company Analysis
Every term in the track, defined in plain English. These definitions also pop up when you hover the dotted terms inside lessons - and feed your flashcard review.
Methods
- Comparable company analysisComps
- Valuing a company by applying the trading multiples of similar public companies to its own financials.
- Peer group
- The set of 5-10 companies, similar in industry/size/growth, used as the comparison universe.
- Precedent transactions
- Valuing off the multiples paid in comparable past M&A deals; tends to run higher than trading comps.
M&A
- Control premium
- The premium (often 20-40%) an acquirer pays over the unaffected price for control; already embedded in transaction multiples.
- Synergies
- Cost or revenue gains an acquirer expects from combining the two companies; part of why buyers pay a premium.
Multiples
- Matching principle
- Pair pre-interest metrics with enterprise value and after-interest metrics with equity value (price).
- EV / EBITDA
- The workhorse multiple; independent of capital structure, taxes, and D&A, so it compares operating engines.
- EV / Revenue
- Used for high-growth or unprofitable companies where earnings-based multiples break down.
- P / E
- Price to earnings; an equity multiple suited to established, profitable companies.
Data
- LTM
- Last twelve months - the trailing basis for a multiple.
- NTM
- Next twelve months - the forward basis, important for fast growers.
- Median
- The middle value of the peer multiples; outlier-resistant, so it anchors the multiple applied to the target.
Value
- Enterprise valueEV
- Value of the core operating business to all investors; pairs with pre-interest metrics.
- Equity value
- Value to common shareholders; enterprise value minus net debt.