What are the three main ways to select Comparable Companies / Precedent Transactions?

• A. Market capitalization, revenue, growth rate
• B. Geography, regulatory environment, currency
• C. Industry classification, financial criteria, geography
• D. Product mix, cost structure, leadership

Answer: (C)

In comps analysis, you select peers by aligning three dimensions: industry classification, financial criteria, and geography. Matching on industry ensures you’re comparing businesses with similar business models and revenue drivers. Aligning on financial criteria makes sure the firms are similar in size and profitability so that multiples like EV/EBITDA or P/S are meaningful. And matching on geography accounts for country-specific factors such as regulation, currencies, tax regimes, and market dynamics that can affect valuations.

This is why the best answer combines industry, financial characteristics, and geography. The other options mix elements that don’t fully capture how to choose truly comparable companies or transactions: one focuses only on a few financial metrics, another emphasizes geography and regulatory factors without industry or financial alignment, and the last centers on internal features rather than attributes used to define comparability.