The investment banking interview question we’re going to go over today is “How do you select which companies to use in your comps?” Here’s what you should say.
“In general, we select peers based on similarities in business, geography, and financials.
First, I would narrow my selection down to companies operating in the same business. Ideally, these companies are direct competitors to our company in question because that means there’s very close resemblance.
If there’s a long list of names, I would narrow them down further by screening for companies located in the same country as our company. That’s in terms of both where they are listed and where they derive most of their revenue from.
And if there’s still a long list of names after this, then I would add an additional filter to find companies that also share similar financial characteristics, such as revenue size and margins. That’s how I’d go about choosing my comps.”
In short, that’s how you should answer the question: “How do you select which companies to use in your comps”. Long story short, the three criteria you would use to screen for comps are resemblance in business, geography and financials.