4.2.1. Example Comparable Companies Analysis
This section provides a step-by-step example of how to conduct a comparable companies analysis, ultimately establishing a valuation range for a hypothetical company. Centennial Brewing, a private craft brewing company, is a leader in its industry. The company is preparing to make its stock available to the general public. You are interested in gauging its overall profitability and financial prospects.
Step 1: Identify a peer group of comparable companies. Remembering that this step begins with making sure you have a thorough understanding of the target company, you research Centennial’s finances and other relevant information. The fact that it’s a private company makes the search a bit more difficult, but with access to press releases, the Centennial corporate website, and its preliminary prospectus, you are able to learn a lot about the company. You have come up with an income statement and balance sheet for the last twelve-month period, as well as a basic understanding of the company’s sector, subsector, customer base, and distribution channels. From these sources, you determine that Centennial Brewing is a large-scale producer of American craft beer. The company has experienced a steady growth in its 10-year history, rising from a small start-up to one of the most respected and financially accomplished members of the American Craft Brewers Guild. Centennial sells through regional distributors to wholesale and retail markets throughout the United States. Its products are not sold internationally.
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Background Financial Information on Centennial (dollar amounts in millions) |
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Centennial Brewing Company |
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Consolidated Statements of Income |
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LTM |
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Net Revenues |
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