What is generally the first step in the Comparable Company Analysis?

• A. Identifying metrics and multiples
• B. Calculating historic returns
• C. Determining a list of comparable companies
• D. Performing a market analysis

Answer: (C)

In Comparable Company Analysis (CCA), determining a list of comparable companies is indeed the first step. This process involves identifying firms that operate in the same industry, have similar operational characteristics, and are similar in size and market capitalization. The rationale behind this step is to ensure that the comparisons drawn later on are relevant and meaningful.

By establishing a group of comparable companies, analysts can create a benchmark for valuing the target company. This set of comparables helps in deriving valuation multiples, which will be utilized in the subsequent steps of the analysis, like identifying metrics and multiples or calculating historic returns. Without a solid list of appropriate comparable companies, any analysis conducted afterward may lack precision or relevance, potentially leading to inaccurate conclusions.

In essence, identifying the right companies sets the foundation for the entire analysis, making it a critical first step in the process.