Comparable Transaction

What is a 'Comparable Transaction'

A comparable transaction is 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.

BREAKING DOWN '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.

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RELATED FAQS
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    Share ownership in a private company is usually quite difficult to value due to the absence of a public market for the shares. ... Read Answer >>
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