What Are Comps?

Comparables, or comps for short, are the comparisons of financial metrics in retail, real estate, and business valuation. Therefore, comps are important in eliminating extraneous factors for measuring performance. They determine growth in sales, the fair market value, and the pricing of real estate.

In retail, it means a company's same-store sales versus the previous year or a like store. Just like that, in financial analysis, comps is an abbreviation of comparable company analysis, which is the technique of valuing a business based on the valuation metrics of a peer. In real estate, a comp is a valuation of a property based on a similar property.

Leveraging Comps for Business Valuation

The value metric is usually either market capitalization or enterprise value (EV), which is compared to a set of performance metrics, such as sales, EBITDA, or earnings per share. Performance can be judged on the assumption that similar companies ought to trade at similar multiples.

Those comps are vital to establishing a business's fair market value (FMV). They are mainly used as an asking price for acquisitions and sales, and during disputes or buyouts. One of the common ways to arrive at the fair market value of a business is by multiplying the price-to-gross revenue multiple by the revenue of the business.