The cable industry comps template allows investors to compare one cable company to other ones and to the industry as a whole. This method helps to determine the value of a particular company. This template looks at the Charter Communications Inc. Charter, which is an American telecommunications company that offers cable under its brand, Spectrum.
Here is a quick preview of CFI’s cable industry comps template:
How do comparables table work?
A comparables table compares several factors for different companies. These factors are related to both quality and value. By looking at the comparables table, investors can determine which companies have the best quality at the best price. Comparables is one of the three main ways of valuing a company, the other two being a discounted cash flow (DCF) and precedent transaction. It is easier to build than a DCF as it requires less information, assumptions and input. It is also more accurate than looking at precedent transactions, which can become outdated easily.
Overall, comparables are quite intuitive and are relatively easy to understand. Since the values created are all on a relative basis, the values are easy to interpret as good or bad.
Choosing comparable companies
To make a useful comps table, the companies chosen must have similar characteristics. For example, a company in the technology industry should not be compared to one from healthcare. The two companies will have very different growth rate and trading multiples. Typically, a tech company will have a higher P/E ratio, which will suggest it is more expensive than a healthcare company. However, this is because the tech company will have higher growth rates and profitability so the higher P/E is justified.
Thus, when selecting companies for a comps universe, some things to consider include:
This template focuses on industry classification, size, and geography. While the other three components are important, they require a deeper dive into a companies financial statement. Also, trying to find companies with similar growth rate, profitability, and capital structure also require a more careful selection process.
The cable industry receives steady cash flows from selling unlimited access or packages of channels to consumers. Companies in the industry enjoy high barriers to entry, which means less intense competition. The only risk that the cable industry faces are significant economic downturns. Since economic downturns mean people have less disposable income, they will spend less on premium packages or options offered by cable companies.
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