Relative valuation
Trading comparables
Build a comps table for Rawdah's peers and turn it into a value-per-share range.
Learning objectives
- Calculate EV/EBITDA and P/E for a peer group
- Summarise peer multiples with quartiles and the median
- Derive an implied enterprise value and value-per-share range
- Normalize the subject company's earnings before applying multiples
Trading comparables ("comps") value a company from how the market prices similar listed businesses today. The steps: choose peers with similar business models, growth and risk; calculate their multiples on consistent figures; summarise the range; apply it to the subject company; and bridge to value per share.
In this lesson the subject is Rawdah Home Retail Co., the fictional home-furnishings retailer from the case, valued against five fictional listed peers on their latest fiscal year. All figures are SAR millions.
Implied EV = peer EV/EBITDA × subject EBITDA → equity = implied EV − net debt → ÷ diluted shares Implied equity value = peer P/E × subject net income → ÷ diluted shares
- 25th / 75th percentile
- the lower and upper quartiles of the peer multiples; with five peers, the 2nd smallest and 2nd largest (SMALL(range,2), LARGE(range,2))
- Median
- the middle peer — the usual point estimate
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.