The similar company comparison method (market approach method) is a method of extracting companies that are similar in size and business details from the listed companies among the listed companies and calculating the total market capitalization as indicators (sales, EBIT, EBITDA ) By the index of the company to be evaluated and calculating the corporate value. It is used as a method of comparing multiple similar companies in M & A company sale or acquisition. EBIT stands for Eamigs Before Interest & Tax, which refers to operating profit or ordinary profit plus financial balance. EBITDA stands for EBIT + Depreciation & Amotization and refers to EBIT plus depreciation expenses. Although the stock price of listed companies fluctuates day by day, it is now possible to know the market capitalization of the company by the stock price attached in the stock market. Market capitalization of a company is “market price” of corporate value on the stock market that day. Based on this stock price it is possible to know the market price of M & A company and acquisition price based on market capitalization of similar company calculated.
Selection of similar operating companies is important for M & A
Selection of similar companies is considered important in comparable company comparability method. In order to sell a company by M & A, when comparing the price of that company using comparable company comparability method, it is the choice of a similar company listed first. We can strive to select companies that are close in many respects, not only industries but also maturity and regionality of companies. Among various companies such as medium- and small-sized enterprises and major companies, it is important to select companies with similar business contents and scale to their company. If you can select a similar company, you can compare the management index of the selected multiple company and the company’s management index. As management indicators, profits, net assets, and EBITDA mentioned above are used. By comparing our company with a similar company listed on the market, we will calculate how much stock price and how much market capitalization is equivalent if our company is listed. As for the number of similar companies, it is said that 3 companies to 10 companies are good, so in the case that similar companies do not exist much, it is better to avoid using only this similar company comparison method.