Explain Market Comparables Method of valuation. What are the steps involved in this method of valuation ?

Market Comparables: This method of valuation is generally applied in case of unlisted entities. This method estimates value by relating the same to underlying elements of similar companies for past years. It is based on market multiples of 'comparable companies'. For example: Earnings / Revenue Multiples (Valuation of Pharmaceutical Brands) Book Value Multiples (Valuation of Financial Institution or Banks) Industry Specific Multiples (Valuation of steel companies based on production capacities like price per ton capacity of steel, per store value in the days of retail boom, price per click in e-commerce) Multiples from recent M&A Transactions Following steps are involved in this method of valuation: Comparable assets are identified and their market values are obtained Market values are converted into standardized values, since the absolute price cannot be compared Standardised value or multiple for the asset being analysed are compared with the standardised value of the comparable asset, controlling for any difference between the firms that might affect the multiple, to judge whether the asset is under or over-valued.