Comparable company analysis estimates a firm’s value by comparing its financial measures with those of businesses selected as similar.
Definition
In this approach, an analyst selects businesses with relevant characteristics, then reviews measures such as enterprise value relative to EBITDA or revenue. The analyst may adjust for differences in size, services, growth, client mix, geography, risk, and financial reporting. Civil engineering firms are often privately held, and available information about them may be limited, so the selected comparisons may not match the firm being valued closely. Different analysts can choose different peers, periods, and adjustments, which can produce different indications. Owners can use the analysis to understand how market evidence informs a valuation, while checking whether the businesses and measures are genuinely comparable. The method does not establish a guaranteed sale price, and a peer’s reported multiple cannot be applied mechanically to another firm. The AICPA provides resources on valuation services.
How owners use it
- Ask which companies were selected and how their service mix, scale, clients, and financial reporting compare with the firm.
- Review whether the value and financial measures use consistent periods and adjustments across selected businesses.
- If a comparable business has enterprise value of $8,000,000 and EBITDA of $1,600,000, then $8,000,000 ÷ $1,600,000 = 5 times EBITDA.
- Use the result as market context alongside cash flow forecasts, assets, risks, and firm-specific operating information.
