Business Planning & Strategy, Financial Models
Trading Comparables Valuation: How to Value a Company Using Market Multiples
Trading comparables offer a market-driven benchmark for valuing private or public companies. The method is rooted in relative valuation: comparing a company’s financial metrics against similar firms to infer its implied value. It is favored in M&A, equity research, and IPO pricing due to its simplicity, speed, and alignment with investor expectations.
Model Design: Core Inputs and Output Structure
An effective trading comps model starts with a peer group and ends with implied enterprise and equity values. Key steps are:
| Component | Details |
|---|---|
| Peer Group Selection | Similar sector, geography, margin profile, and growth trajectory |
| Market Data Input | Enterprise Value (EV), Equity Value, Price, Shares Outstanding |
| Financial Metrics | Revenue, EBITDA, EBIT, Net Income (LTM and Forward) |
| Multiples Calculation | EV/Revenue, EV/EBITDA, EV/EBIT, P/E, PEG |
| Valuation Output | Apply median or interquartile range to subject company metrics |
The model must normalize data for calendar alignment, one-off items, and accounting policy differences to ensure comparability.
Common Valuation Multiples and Relevance
| Multiple | Use Case | Industry Preference |
|---|---|---|
| EV/Revenue | Early-stage or low-profit businesses | SaaS, biotech, high-growth tech |
| EV/EBITDA | Core operating profitability | Industrials, manufacturing, services |
| EV/EBIT | Post-D&A profitability | Asset-intensive sectors |
| P/E | Equity value per dollar of earnings | Consumer, financials, mature companies |
| PEG | Growth-adjusted P/E | High-growth sectors |
Multiple selection should align with sector standards and reflect capital structure neutrality (EV-based) or equity focus (P/E-based).
Excel Implementation: From Data to Valuation
A clean Excel comps model requires separate tabs for: raw peer data, multiple calculation, subject company inputs, and valuation output. Conditional formatting flags outliers. A range selector (25th–75th percentile, median) allows flexible application based on risk appetite.
The output tab must translate applied multiples into implied enterprise value, subtract net debt, and yield equity value. Sensitivity tables around forward EBITDA or earnings forecasts improve robustness.
Strategic Use Cases
Trading comps are essential for M&A fairness opinions, IPO pricing, investor presentations, and internal capital budgeting. For private companies, it serves as a reality check against market valuation norms. For corporates, it supports strategic planning by benchmarking valuation gaps versus peers.
So what?
The trading comparables model converts market data into actionable valuation intelligence. Its relevance lies in external validation: what is the market paying for similar companies, and where does your business stand? When applied with discipline, it offers fast, intuitive, and transparent valuation guidance grounded in real investor behavior.
Trading Comparables Valuation can be time-consuming. The Trading Comparables Valuation Model template on SHEETS.MARKET simplifies financial statement analysis by automatically calculating key financial ratios and generating insightful charts.
