Comparable Transaction

AAA

DEFINITION of 'Comparable Transaction'

A method of valuing a company that is for sale. Comparable transactions considers the past sales of similar companies as well as the market value of publicly traded firms that have an equivalent business model to the company being valued. To get a more accurate valuation, more than one comparable transaction should be used. This method of valuation can help identify the current value and potential growth for a company.

INVESTOPEDIA EXPLAINS 'Comparable Transaction'

Comparable transactions look at multiples such as the EV/EBITDA ratio, among others, to determine a value. The difficulty with this approach is the limited availability of financial data regarding past transactions between private companies. A comparable transaction approach is generally used in conjunction with other valuation techniques including the discounted cash flow and other comparable company analysis techniques.

RELATED TERMS
  1. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s ...
  3. Comparable Company Analysis - CCA

    A process used to evaluate the value of a company using the metrics ...
  4. EBITDA/EV Multiple

    A financial ratio that measures a company's return on investment. ...
  5. EBIT/EV Multiple

    A financial ratio used to measure a company's return on investment. ...
  6. Stock Analysis

    Stock analysis is a term that refers to the evaluation of a particular ...
RELATED FAQS
  1. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  2. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  3. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  4. How can I use market capitalization to evaluate a stock?

    Market capitalization represents the market value for an entire company. Investors can compare market cap to financial data ... Read Full Answer >>
  5. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  6. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Valuing Firms Using Present Value Of Free Cash Flows

    When trying to evaluate a company, it always comes down to determining the value of the free cash flows and discounting them to today.
  2. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  3. Investing Basics

    Patents Are Assets, So Learn How To Value Them

    Innovation is the key to staying on top. Find out how companies protect their ideas and how to figure out how much they're worth.
  4. Forex Education

    Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  5. Investing Basics

    DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.
  6. Markets

    Valuing Private Companies

    You may be familiar with publicly-traded companies, but how much do you know about privately-held firms?
  7. Markets

    How To Choose The Best Stock Valuation Method

    Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one.
  8. Fundamental Analysis

    Top 3 Pitfalls Of Discounted Cash Flow Analysis

    The DCF method can be difficult to apply to real-life valuations. Find out where it comes up short.
  9. Bonds & Fixed Income

    8 Reasons M&A Deals Fall Through

    Mergers and acquisitions can mean big success. But what about all the deals that fall through?
  10. Bonds & Fixed Income

    Equity Valuation In Good Times And Bad

    Learn how to filter out the noise of the market place in order to find a solid way of determing a company's value.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center