TRADING COMPS MODELING EXAM WALL STREET PREP
ACTUAL QUESTIONS & VERIFIED ANSWERS 2025
1. Why we use trading comps to value companies:
The purpose of a trading comps analysis is to determine what
is the "appropriate" value of a
company, based on the market values of operationally similar
companies.
When you try to gauge the fair value of your house by comparing to
the values of houses
nearby, you're doing a comps analysis.
2. How are comps analyzed?:
We don't compare absolute values but rather multi- ples to
account for differences in a company.
https://www.stuvia.com/user/MBOFFIN 1/
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, 3. Non-operational differences that shuld be taqken into account
so as to not distort the comparison:
• Financial leverage differences
• Accounting differences (depreciation method, useful life
assumptions)
• Temporary distortions (nonrecurring items)
• Other accounting differences (lease classification, LIFO vs. FIFO)
• Business life cycle differences
4. What are examples of measures independent of leverage1:
EV, Revenue, EBITDA, EBIT, Unlevered free cash flow
5. Nonrecurring items in historical profits:
must be taken out of profits in order to exclude the distortion
6. What to do when companies are in different stages in their life
cyucle:
https://www.stuvia.com/user/MBOFFIN 2/
24
, Mul- tiples like pEG standardize against different long-term
growth rates
Ev/revenue facilitate comparisons for early stage companies
generating loses.
7. PE ratio defn and description:
share price/EPS Equity Value/ Net income
EPS is used as a proxy for economic equity value
8. Issues with P/E:
EPS is a measure of accounting profit only during a particular
period
Accounting profits can be misleading because they include
noncash and nonrecurring items, and accounting assumptions ,
and can be manipulated
https://www.stuvia.com/user/MBOFFIN 3/
24
ACTUAL QUESTIONS & VERIFIED ANSWERS 2025
1. Why we use trading comps to value companies:
The purpose of a trading comps analysis is to determine what
is the "appropriate" value of a
company, based on the market values of operationally similar
companies.
When you try to gauge the fair value of your house by comparing to
the values of houses
nearby, you're doing a comps analysis.
2. How are comps analyzed?:
We don't compare absolute values but rather multi- ples to
account for differences in a company.
https://www.stuvia.com/user/MBOFFIN 1/
24
, 3. Non-operational differences that shuld be taqken into account
so as to not distort the comparison:
• Financial leverage differences
• Accounting differences (depreciation method, useful life
assumptions)
• Temporary distortions (nonrecurring items)
• Other accounting differences (lease classification, LIFO vs. FIFO)
• Business life cycle differences
4. What are examples of measures independent of leverage1:
EV, Revenue, EBITDA, EBIT, Unlevered free cash flow
5. Nonrecurring items in historical profits:
must be taken out of profits in order to exclude the distortion
6. What to do when companies are in different stages in their life
cyucle:
https://www.stuvia.com/user/MBOFFIN 2/
24
, Mul- tiples like pEG standardize against different long-term
growth rates
Ev/revenue facilitate comparisons for early stage companies
generating loses.
7. PE ratio defn and description:
share price/EPS Equity Value/ Net income
EPS is used as a proxy for economic equity value
8. Issues with P/E:
EPS is a measure of accounting profit only during a particular
period
Accounting profits can be misleading because they include
noncash and nonrecurring items, and accounting assumptions ,
and can be manipulated
https://www.stuvia.com/user/MBOFFIN 3/
24
