How do you build a clean comparable set, and what adjustments make peers truly comparable?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Start by selecting peers on business comparability — same industry, business model, end-markets, growth and margin profile, size, and geography — not just the same broad sector. Then make the figures comparable: calendarize to a common fiscal year-end, use consistent definitions (same treatment of leases/IFRS 16, SBC, exceptionals across all peers), strip one-offs and normalize EBITDA the same way for each, and ensure the EV is built consistently (same debt-like items, minorities, associates handled identically). Exclude or flag outliers driven by special situations (M&A targets trading on bid speculation, distressed names, illiquid stocks). Present the spread (use the median, note the range) rather than a single peer. The discipline is twofold: the right companies, and the same accounting lens applied to all of them — because an inconsistently computed multiple set produces a confidently wrong answer.
WHAT INTERVIEWERS LISTEN FOR
- ✓Select on business model, end-markets, size, geography, margins/growth
- ✓Calendarize and apply consistent definitions across all peers
- ✓Normalize EBITDA and build EV the same way for each
- ✓Exclude special-situation outliers; present median and range
COMMON MISTAKES
- ✗Peers chosen on sector label alone
- ✗Inconsistent lease/SBC/exceptional treatment across the set
- ✗Including bid-affected or distressed outliers
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RELATED QUESTIONS
- Which valuation method typically gives the highest value?
- How do you determine the appropriate peer group?
- Why do we use EBITDA as a proxy in valuation?
- Why is the median preferred over the mean for multiples?
- How do you handle different fiscal year-ends in a comps analysis?
- How do you adjust EBITDA for a comp analysis?