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Comps – Definition
Comps is an abbreviation of the word comparables. The word is used similarly across industries to represent comparable metrics between a company’s present and past performance or two companies or assets. The use of the term comps varies based upon the specific context of use.
Common scenarios for use include:
- Company Valuation
- Same Company Sales
- Real Estate Values
A Little More on What are Comparables
The term comps (short for comparables) carries different meanings depending on the industry and context, but entails a comparison of financial metrics and other factors to quantify performance or determine valuation.
Company Valuation Comparables
Comps is frequently used in company valuation. It entails identifying key financial or operational characteristics of a company. These metrics are then compared to the value of the company. The value of the company is generally derived from asset-based valuation methods or cash-flow-based valuation methods. The resulting ratio is used to determine the value of a comparable company. The comparable company will generally be similar in size, industry, region, etc.
Comps are also used to arrive at a valuation for a company that is going through a comparable transaction – such as equity funding, merger, acquisition, or asset sale. In this scenario, the key performance metrics are compared to the value ascribed to the company as part of an underlying transaction. Often, these valuations are heavily inflated above cash-flow value due to the strategic benefits to the purchaser or some other factor affecting the purchaser’s demand and the availability for purchase (i.e., supply and demand). The resulting ratio is used to value a comparable company undergoing a similar transaction.
Read Comparable Company Analysis for further explanation.
Retail Sales Comparables
Retail companies generally use the term comps to compare sales metrics from one period to another. The most common comparable is present month sales compared to the same month during this previous year. This gives a good indication from company performance when the company is in a highly-seasonal industry. .
Real Estate Comparables
In the real estate business, comps refers to similar pieces of property or the value metrics ascribed to them. These metrics are compared to the sale price of the property to arrive at a ratio. These ratios (price/value metrics) are used to value similar properties. The ratio will be used as a multiple of the similar value metrics for the property being valued. Some of the commonly-used comparable factors include square footage and lot size. To be a valid valuation tool, the characteristics of the properties must be very similar – such as similar neighborhood, style, amenities, age, etc.
Read Comparable Market Analysis for further explanation.