Comparable company analysis often referred to as “comps” is a valuation method that uses financial ratios of similar businesses to value a company. CFI’s retail industry comps template provides a number of comparable companies for Lululemon Athletica Inc.
Comps analysis is very useful since it involves fewer assumptions than many other valuation methods. It is also relatively simple and easy to use. In this retail industry comps template, you can easily see what metrics such as the EV/EBITDA and EV/Revenue are for the industry.
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Choosing Comparable Companies
One of the most important steps in doing a comparable company analysis is selecting the companies that will be used for the analysis. It is vital to choose companies that are relevant to the business you are trying to value. There are several factors that can be taken into consideration when choosing a company. CFI’s retail comps template considers these factors when looking at Lululemon Athletica Inc:
Since this template is industry-specific, industry classifications are already matched. It is important to note that industry classifications can be broken down into subcategories. For example, Lululemon is in the clothing industry, however, it is a retailer. Other retailers such as Inditex are therefore an appropriate match. Furthermore, Lululemon focuses on sportswear. Companies like Under Armour, which produce sports clothing are also considered. Other factors must also be taken into account, for example, Nike is not included in the list of comparables even though they offer sportswear. This is because a significant portion of their revenue comes from shoes, which Lululemon does not focus on.
Size and geography are straightforward to match, however, growth rate, profitability, and capital structure involve further assessment of each company’s financials. This template prioritizes size and geography and also includes the following characteristics: