Comparable companies

Similar businesses should trade at similar multiples of their earnings or cash flow. If peers trade at ten times EBITDA and your company has $100m of EBITDA, a first estimate of enterprise value is $1bn. The work is in choosing true peers and normalising the numbers.

Match on business model first, then size, growth, margins and geography. A software company selling subscriptions is not a peer of one selling licences, even in the same sector. Five to fifteen peers is typical; quality beats quantity.

For each peer, calculate equity value from diluted shares (using the treasury stock method for options), bridge to enterprise value, and pull last-twelve-month and forward revenue, EBITDA and earnings. Adjust for non-recurring items so you compare like with like.

EV/EBITDA is the workhorse for mature businesses. EV/Revenue is used for unprofitable growth companies. P/E suits financials and stable earners. Sector-specific metrics exist: EV per subscriber, price-to-book for banks, EV/EBITDAR for airlines and retailers with heavy leases.

Use the median and interquartile range, not just the mean, because one outlier can skew the average. Then argue whether your company deserves a premium or discount — higher growth, better margins and lower risk justify premiums. That argument is the analysis; the spreadsheet is support.