Comps

What Are Comps?

The term comps, short for comparables, conveys various implications relying upon the industry and setting, however generally involves a comparison of financial metrics and different factors to measure performance or determine valuation.

In retail, it alludes to a company's same-store sales compared to the previous year or a comparative store. Essentially, in financial analysis, comps is short for "comparable company analysis," which is a technique used to assign a value to a business in view of the valuation metrics of a peer. In real estate, comps are utilized to evaluate a property's value by contrasting it with comparable properties.

Grasping Comps: The Retail Sector

At the point when used to check the performance of retail operations, comps is utilized with regards to comparable same-store sales. This comps metric is utilized by analysts and investors to determine which portion of any sales growth is credited to old stores versus new stores. Some large retail chains release comps month to month.

Stores that have been open for short of what one year are new stores. New stores regularly experience high growth rates in light of multiple factors, including advancements, increased interest from dispatches, and amazing openings. Subsequently, remembering new stores for the growth rate calculation for a whole retail chain can make misdirecting results. Since the comps metric just compares results for stores that are more seasoned than one year, it gives a better indication of true growth for the overall firm.

Ascertaining and Using Retail Sales Comps

To compute a company's sales growth rate, deduct the previous year's sales from the current year's sales and afterward partition the difference by the previous year's amount. For instance, if Company An earned $2 million in revenues last year and $4 million this year, the calculation to determine its growth rate is $4 million minus $2 million, separated by $2 million, or 100%.

A curious investor digs further and requests how much from the growth was due to new stores compared to old stores. They discover that new stores generated $3 million of the current year's sales and stores open for at least one years generated just $1 million of sales.

To ascertain comp sales, the investor does exclude sales from new stores. The new calculation is $1 million, minus $2 million, partitioned by $2 million, or - half. At the point when comp store sales are up, the company's sales are expanding at its current stores. At the point when total sales growth is up and comp stores are down, the company is generating the vast majority of its revenue from the opening of new stores to keep up with growth, which could be an indication of strife.

Comps not just furnish investors and analysts with important data about the financial strength of a company, yet they likewise assist retailers with surveying how well their existing stores perform against different locations.

Comps: Business Valuation Method

While determining the value of a business in light of comparable company analysis, an analyst will use a ratio in view of a value metric like market capitalization or enterprise value (EV) compared to a performance metric, like sales, [EBITDA](/changed ebitda), or profit/profit per share. A determination on performance can be made under the assumption that companies that are comparable ought to trade at comparable multiples.

Such comps are particularly important while determining the fair market value (FMV) of a business. They can be utilized to figure out an asking or offer price in an acquisition or sale, or on account of a dispute between partners or during a buyout.

One common approach to utilizing comps to determine the fair market value of a business is to take the price-to-net revenue different and increasing that figure by the business revenue figure.

Real Estate Comps

In real estate, analyzing comps means contrasting properties that have comparable characteristics, like size, age, and location. Factors likewise incorporate market conditions, like changes in price after some time, as well as conditions of sale, for example, whether the property last sold as a distress sale or an estate settlement, or whatever other factor that could influence its value.

Property owners or purchasers ought to know that a few comps may not accurately address the value of a home. A few comps might be too dated in a quick evolving marketplace, or may refer to properties that are too far away or still on the market.

Highlights

• Excluding new stores in comps eliminates unessential factors, for example, fantastic opening advancements, that might skew results.
• Comps are significant metrics utilized by retailers to recognize the profitability of a current store.