For a valid comps analysis, what must the stakeholders in the numerator and denominator match?

In a comparables analysis, or "comps" analysis, it is essential that the stakeholders in both the numerator and denominator match in terms of the type of metric being considered. This alignment ensures that the comparison is relevant and meaningful. For example, if you are comparing price-to-earnings (P/E) ratios across different companies, both the numerator and the denominator must reflect earnings in a consistent manner—whether it's trailing earnings, forward earnings, or adjusted earnings.

Using different types of metrics, such as comparing price-to-earnings with enterprise value to EBITDA, would lead to misleading conclusions, as they reflect different financial aspects of a company. This focus on matching metrics is fundamental to deriving accurate and actionable insights from the analysis.

While other factors like timeframe of data, company size, geographic location, and methods of calculating growth can influence the analysis, they are not as critical to ensure the fundamental comparison is valid. The core requirement is that stakeholders are compared using the same type of financial metric to provide an apples-to-apples basis for evaluation.