Comparable Company Analysis (CCA)

You are out in the market to buy a second-hand car. What’s the first thing you do?

You check the prices of cars in the market — the model, the year, the mileage. This comparison helps you decide whether a particular seller is quoting a fair price or not.

The same logic applies when valuing companies using the Comparable Company Analysis (CCA) method.

What is Comparable Company Analysis (CCA)?

CCA is a relative valuation method. Instead of trying to calculate the absolute worth of a company from scratch (as with DCF), CCA estimates the company’s value based on how similar companies are priced in the market. It assumes that companies with similar business models, industries, and financial profiles should trade at similar valuation multiples.

How Does CCA Work?

The idea is to identify a “peer group” — other companies that are similar in size, industry, revenue models, and risk — and then compare valuation ratios. These ratios are applied to the company being analysed to estimate its value.

Commonly Used Multiples in CCA:

• Price-to-Earnings (P/E) Ratio
  
• Enterprise Value to EBITDA (EV/EBITDA)
  
• Price-to-Book (P/B) Ratio
  
• EV/Sales Ratio
  

These multiples help convert a company’s raw financial data into a relative pricing model.

Example: Suppose you’re valuing a mid-size IT company in India. You pick Infosys, TCS, Wipro, and HCL Tech as peers. You observe their average P/E multiple is 25x. If your target company earns ₹100 crore in net profit annually, using the same P/E ratio:

This gives you a ballpark valuation based on market sentiment toward similar companies.

Advantages of CCA:

• Quick and market-relevant
  
• Based on real-world pricing
  
• Great for IPO pricing or merger targets
  

Limitations of CCA:

• May not work if the company has no true comparables
  
• Can be distorted during market extremes (e.g., bull runs or crashes)
  
• Doesn’t reflect internal strengths or weaknesses
  

In India, CCA is often used during IPOs. When Zomato listed in 2021, analysts compared its valuation multiples to global food tech peers like DoorDash and Delivery Hero to evaluate the offering.

Comparable Company Analysis gives a useful sense check — it shows how your company stacks up against others in the same space. While it’s not as detailed as DCF, it reflects real-time investor