What are comps in valuation?

• A. They are benchmarks drawn from similar companies in size, structure, and industry
• B. They are tax compliance benchmarks
• C. They are marketing performance benchmarks
• D. They are legal compliance benchmarks

Answer: (A)

Comps in valuation refers to comparable companies analysis, where you select peers that are similar in size, structure, and industry and use their market valuations as benchmarks. The underlying idea is that the market prices companies with comparable risk and growth profiles with similar multiples, so you can apply those multiples (like EV/EBITDA or EV/Revenue) to the target’s metrics to estimate its value. This yields a market-based valuation range and is especially useful for gauging what buyers would pay. The method hinges on careful peer selection—similar scale, business mix, profitability, leverage, and geographic exposure—to avoid distorting the implied value. It’s not about tax benchmarks, marketing performance, or legal compliance metrics, which don’t reflect how the market values a business.