How to Answer “Walk me through a comparable company analysis (trading comps).” in Investment Banking Interviews
“Walk me through a comparable company analysis (trading comps).” is a core prompt in comparable company analysis interview prep and one of the most common trading comps interview questions for Investment Banking analyst roles. Interviewers want to hear a clean, repeatable process—not a data dump.
A strong answer explains how you choose peers, what multiples you use and why, how you translate multiples into an implied valuation range, and how you sanity-check the output against the business model and market context.
What Interviewers Test in Trading Comps Interview Questions
In investment banking technical questions like this, interviewers are assessing whether you can turn a messy market landscape into a defensible peer set. That means understanding what “comparable” actually implies (business model, growth, margins, risk, accounting, and capital structure), not just matching an industry label.
They’re also testing valuation judgment: selecting the right multiples (e.g., EV/EBITDA vs EV/Revenue vs P/E), making appropriate adjustments (NRI, leases, minority interests, one-offs), and explaining why the chosen metric fits the company’s economics. This is a practical extension of valuation techniques interview prep—linking market pricing to fundamentals.
Finally, they’re testing communication under time pressure. In interviews, you rarely have a full spreadsheet; you must articulate the steps, key checks, and typical pitfalls in a way that sounds like you could execute it in a live deal or in financial modeling interview questions that require quick implied value math.
Step-by-Step Guide to Trading Comps in Investment Banking
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Step 1: Define Trading Comps and set the objective
Start with a one-sentence definition and the output you’re solving for. Trading comps (Comparable Company Analysis) values a company using valuation multiples at which similar public companies trade today. The objective is usually an implied equity value per share (and often an EV range) for the target.
Then state the “unit of analysis”: enterprise value vs equity value. In practice you’ll compute market cap, build to EV (add net debt and other claims), and apply EV-based multiples to operating metrics. If the question is interview-style rather than a case, briefly call out the two deliverables you’d present: (1) a peer set and (2) a valuation range anchored on relevant multiples and time periods (LTM and/or forward).
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Step 2: Build a defensible peer set (the ‘comparable’ part)
Explain how you’d screen for peers and why. Lead with the drivers that make companies comparable: products/end markets, customer mix, geography, revenue model (subscription vs transactional), scale, growth outlook, margin profile, and cyclicality. Then mention secondary filters: trading liquidity, free float, reporting standards, and corporate actions.
In interviews, it helps to say you’d start broad (10–15 names) then narrow to a tight set (5–10) once you understand differences. Also mention exclusions: distressed names, unusual capital structures, pending M&A, or companies with accounting that distorts metrics.
If you want to show extra judgement: call out that sometimes the “best” comps are business-model comps even if the SIC/NAICS code differs, and you may build sub-sets (e.g., high-growth vs mature) to avoid averaging unlike profiles.
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Step 3: Standardise financials and calculate market metrics
Walk through what you would compute before any multiples: current share price and diluted shares to get market cap; then bridge to enterprise value by adding net debt and other claims such as preferred equity, minority interest, and pension/lease-type adjustments (depending on the firm’s conventions).
Then standardise the denominator metrics so the multiples are comparable: LTM revenue, LTM EBITDA/EBIT, and if relevant, LTM EPS or NTM estimates. Mention you would adjust for non-recurring items (restructuring charges, one-time gains/losses), align accounting treatments where practical, and use consistent periods (e.g., last reported quarter rolled forward for LTM).
This is where interviewers often probe: you don’t need every line item memorised, but you should show you know the directionally correct mechanics and what can distort comparability.
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Step 4: Choose and interpret the right multiples (LTM vs NTM)
State that you select multiples based on what drives value in the sector. For asset-light, high-growth businesses you might emphasise EV/Revenue (with a clear caveat and supporting metrics like margin trajectory). For stable cash-generative businesses, EV/EBITDA or EV/EBIT is typically central. For banks/insurers, P/B and P/E are more relevant (and EV multiples are usually not).
Call out timeframes: LTM is objective but backward-looking; NTM/forward multiples incorporate market expectations and are often more meaningful if estimates are reliable. In an interview, explicitly say you’d look at both, then triangulate.
Finally, explain interpretation: higher multiples can reflect higher growth, stronger margins, lower risk, better capital efficiency, or scarcity value—so you’d avoid “blindly applying the mean” without checking where the target sits on those drivers.
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Step 5: Apply multiples to the target, derive a range, and sanity-check
Explain the final translation from market multiples to implied value. If you use EV-based multiples, you apply them to the target’s chosen operating metric (e.g., target EBITDA) to get implied EV. Then you bridge EV to equity value by subtracting net debt and other claims, divide by diluted shares to get implied price per share.
Describe how you set the range: typically use the interquartile range (25th–75th percentile) and the median, and consider where the target should trade based on its relative growth/margins/risk. Mention sensitivity: if one peer is an outlier due to a special situation, you may exclude it or down-weight it.
Close with sanity checks: implied multiples vs the peer set, implied premium/discount rationale, and consistency versus other Valuation Methods (precedent transactions, DCF) if available. That shows you know comps are a market-based anchor, not “the answer.”
Comparable Company Analysis Interview Prep: Analyst Model Answer
Trading comps, or Comparable Company Analysis, is a market-based valuation method where I value the target using the trading multiples of similar public companies today.
I’d start by building a defensible peer set: companies with similar products and end markets, revenue model, geography, and then I’d refine based on scale, growth and margin profile so I’m not averaging very different businesses. I’d also flag and remove names with distortions like distress, pending M&A, or unusual capital structures.
Next I’d calculate each peer’s market metrics. I’d get market cap from share price times diluted shares, then bridge to enterprise value by adding net debt and other claims like preferred equity or minority interest where relevant. On the financials side, I’d standardise the denominators—LTM and/or NTM revenue, EBITDA, EBIT, and EPS—making sure I’m using consistent time periods and adjusting for major non-recurring items.
Then I’d select the right multiples for the sector—typically EV/EBITDA and EV/Revenue, and sometimes P/E if equity earnings are the focus—and I’d look at both LTM and forward multiples to balance objective history with market expectations.
Finally, I’d apply an appropriate range of peer multiples—often the interquartile range and median—to the target’s metrics to get an implied EV range, convert that to equity value by subtracting net debt and dividing by diluted shares, and sanity-check whether the implied premium or discount makes sense given the target’s growth, margins and risk. If time permits, I’d triangulate the result against other Valuation Methods like a DCF or precedent transactions.
- Keep the opening definition crisp; it should stand alone if the interviewer cuts you off.
- Say ‘peer set’ + ‘standardise’ + ‘apply multiples’ + ‘sanity-check’—those are the four beats interviewers listen for.
- Name 2–3 relevant multiples and explain *why* they fit the business model.
- Always bridge EV to equity value (and mention diluted shares) to show you can get to price per share.
- Use ‘range’ language (IQR/median) rather than implying a single precise number.
Common Pitfalls in Valuation Techniques Interview Prep
- Treating comps as a list of same-industry tickers instead of explaining comparability drivers (growth, margins, risk, geography, business model).
- Mixing up enterprise value and equity value, or applying an EV multiple to an equity metric (or vice versa).
- Using inconsistent time periods (e.g., mixing calendar-year estimates with LTM without saying so) and ignoring non-recurring items that skew EBITDA/earnings.
- Quoting a single average multiple without discussing outliers, the distribution (median/IQR), or why the target should trade at a premium/discount.
- Forgetting practical adjustments in EV (minority interest, preferred, pensions/leases depending on convention) and sounding like the process is only ‘price × shares’.
- Not interpreting the output—failing to connect implied multiples back to the target’s fundamentals and the current market context.
Follow-Ups Seen in Investment Banking Technical Questions
Which multiples matter most, and when would you use EV/Revenue?
EV/EBITDA is common for cash-generative businesses; EV/Revenue is more relevant when margins are negative or in transition, but you must discuss the path to profitability and margin comparability.
How do you go from implied enterprise value to implied share price?
Start with implied EV, subtract net debt and other claims to get implied equity value, then divide by diluted shares outstanding (including in-the-money options/RSUs as applicable).
What makes a ‘bad comp’ even if it’s in the same industry?
Different business model, geography, scale, growth and margin profile, or a special situation (distress, pending deal, major one-offs) that makes its multiple unrepresentative.
Would you rely on LTM or forward multiples in a comps set?
I’d look at both: LTM is cleaner and objective, while forward multiples often better reflect expected performance; the choice depends on estimate quality and sector dynamics.
How do you handle an outlier multiple in the peer set?
First understand the driver (growth inflection, leverage, accounting, one-time event); then consider excluding it, using medians/IQR, or creating sub-sets so the range is defensible.
Practice Plan for Financial Modeling Interview Questions
- Practise a 2-minute version that hits: definition → peer set → EV/metrics → multiples → implied range + sanity checks; then expand only if prompted.
- Drill the EV bridge out loud (market cap → EV → implied EV → equity value → per share) until you can do it without pausing.
- Prepare one concrete sector example (e.g., software vs industrials vs banks) to show you can pick the right multiples and explain why.
- Use an interviewer-style checklist when you rehearse: “period consistency, non-recurring adjustments, outliers, premium/discount rationale.”
- On AceTheRound, run this as a timed prompt and ask for feedback specifically on structure, EV vs equity clarity, and whether your ‘comparable’ logic is convincing.
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