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Comparative Analysis

Item by item comparison of two or more comparable (see comparability


analysis) alternatives, processes, products, qualifications, sets of data,
systems, etc. In accounting, for example, changes in a financial statement's
items over several accounting periods may be presented together to detect
the emerging trends in the firm's operations and results.

Comparative Investing Multiples Analysis (trade multiples, market


approach, comparable company analysis, relative value analysis): A
comparison between two financial measures used to determine the value of a
target company. The most common methodology for individual equities is
based on comparing certain financial ratios or multiples, such as the price to
book value, price to earnings, EV/EBITDA, etc., of the equity in question to
those of its peers. For example, if one companies' stock price trades at a
EBITDA multiple (value/EBITDA) of 5.0x, then a similar company can be
expected to trade at a similar multiple in the market place. To find the value
of the target company, multiple the 5.0x times (value/EBITDA) the target
targets companies EBITDA number. The result is the value of the target
firm. Accuracy of any ratio depends on the similarity of the companies in
question.

Importance to Investors:

• This measure relies on the similarity of companies. Whereas,


dissimilar companies should be rewarded or penalized when a target
companies' performance is above or below that of the similar
company or industry. Second, any multiple relies on the market
determining the appropriate price for an investment. When these
factors are controlled, multiple analysis can accurately provide a
financial comparative measure for your target company. For example,
if you have one red car selling for 5,000 dollars and an identical red
car with no selling price on it, you can assume that the cars - if truly
similar - would sell for the same price. Any differences in price most
be explained and proven as valid points.

Short Definition

Multiple in financial terminology is a metric used in valuation of companies.


The most commonly used multiples are: P/E (Price earnings ratio),
EV/EBITDA (Enterprise value to Earnings before Interest, Taxes,
Depreciation, and Amortization).

In some industries, sector-specific multiples are also used, such as


EV/capacity, EV/output.

A method for determining the current value of a company by examining and


comparing the financial ratios of relevant peer groups, also often described
as comparable company analysis or comps). The most widely used multiple
is the price-earnings ratio (P/E ratio) of stocks in a similar industry. Using
the average of multiple PERs improves reliability but it can still be
necessary to correct the PER for current market conditions.

Comparative research is a research methodology in the social sciences that


aims to make comparisons across different countries or cultures. A major
problem in comparative research is that the data sets in different countries
may not use the same categories, or define categories differently (for
example by using different definitions of poverty)
Development of the tradition

When the practice of comparative research began is a matter of debate. Karl


Deutsch has suggested we have been using this form of investigation for
over 2,000 years. Comparing things is essential to basic scientific and
philosophic inquiry, which has been done for a long time.[1] Most authors are
more conservative in their estimate of how long comparative research has
been with us. It is largely an empty debate over the definition of the tradition
with those questioning whether comparing things counts as comparative
research.

Textbooks on this form of study were beginning to appear by the 1980s, but
its rise to extreme popularity began after World War II.[2][3] There are
numerous reasons that comparative research has come to take a place of
honour in the toolbox of the social scientist. Globalization has been a major
factor, increasing the desire and possibility for educational exchanges and
intellectual curiosity about other cultures. Information technology has
enabled greater production of quantitative data for comparison, and
international communications technology has facilitated this information to
be easily spread.[4]

Comparative research defined

Comparative research, simply put, is the act of comparing two or more


things with a view to discovering something about one or all of the things
being compared. This technique often utilizes multiple disciplines in one
study. When it comes to method, the majority agreement is that there is no
methodology peculiar to comparative research.[5] The multidisciplinary
approach is good for the flexibility it offers, yet comparative programs do
have a case to answer against the call that their research lacks a "seamless
whole".[6]

There are certainly methods far more common than others in comparative
studies, however. Quantitative analysis is much more frequently pursued
than qualitative, and this is seen in the majority of comparative studies
which use quantitative data.[7][1][8][2] The general method of comparing things
is the same for comparative research as it is in our everyday practice of
comparison. Like cases are treated alike, and different cases are treated
differently; the extent of difference determines how differently cases are to
be treated. If one is able to sufficiently distinguish two cases, comparative
research conclusions will not be very helpful.[9]

Secondary analysis of quantitative data is relatively widespread in


comparative research, undoubtedly in part because of the cost of obtaining
primary data for such large things as a country's policy environment. This
study is generally aggregate data analysis. Comparing large quantities of
data (especially government sourced) is prevalent.[1] A typical method of
comparing welfare states is to take balance of their levels of spending on
social welfare.[7]

In line with how a lot of theorizing has gone in the last century, comparative
research does not tend to investigate 'grand theories', such as Marxism. It
instead occupies itself with middle-range theories that do not purport to
describe our social system in its entirety, but a subset of it.[1] A good
example of this is the common research program that looks for differences
between two or more social systems, then looks at these differences in
relation to some other variable coexisting in those societies to see if it is
related.[10] The classic case of this is Esping-Anderson's research on social
welfare systems. He noticed there was a difference in types of social welfare
systems, and compared them based on their level of decommodification of
social welfare goods. He found that he was able to class welfare states into
three types, based on their level of decommodification. He further theorized
from this that decommodification was based on a combination of class
coalitions and mobilization, and regime legacy.[8] Here, Esping-Anderson is
using comparative research: he takes many western countries and compares
their level of decommodification, then develops a theory of the divergence
based on his findings.

Comparative research can take many forms. Two key factors are space and
time. Spatially, cross-national comparisons are by far the most common,
although comparisons within countries, contrasting different areas, cultures
or governments also subsist and are very constructive, especially in a
country like New Zealand, where policy often changes depending on which
race it pertains to.[5] Recurrent interregional studies include comparing
similar or different countries or sets of countries, comparing one's own
country to others or to the whole world.

The historical comparative research involves comparing different time-


frames. The two main choices within this model are comparing two stages in
time (either snapshots or time-series), or just comparing the same thing over
time, to see if a policy's effects differ over a stretch of time.[7]
When it comes to subject matter of comparative inquiries, many contend
there is none unique to it. This may indeed be true, but a brief perusal of
comparative endeavours reveals there are some topics more recurrent than
others. Determining whether socioeconomic or political factors are more
important in explaining government action is a familiar theme. In general,
however, the only thing that is certain in comparative research issues is the
existence of differences to be analysed.

Type of Comparative Analysis


Qualitative Comparative Analysis (QCA) is a technique, developed by
Charles Ragin in 1987, for solving the problems that are caused by making
causal inferences on the basis of only a small number of cases.[1] The method
is used in social science and is based on the binary logic of Boolean algebra,
and attempts to maximize the number of comparisons that can be made
across the cases under investigation

Objective

The technique aims to alleviate the small N problem by allowing inferences


to be drawn from the maximum number of comparisons that can be made
across the cases under analysis. The small N problem arises when the
number of units of analysis (e.g. countries) available is inherently limited.
For example: a study where countries are the unit of analysis is limited in the
fact that are only a limited number of countries in the world (less than 200),
far less than necessary for (probabilistic) statistical techniques. By
maximizing the number of comparisons that can be made across the cases
under investigation, causal inferences are according to Ragin possible. This
technique would also allow the analysis of multiple causation and interaction
effects.[2]

Criticism

As this is a logical (deterministic) and not a statistical (probabilistic)


technique, with "Crisp-Set" QCA (csQCA), the original application of QCA,
variables can only have two values, which is problematic as the researcher
has to determine the values of each variable. For example: GDP per capita
has to be divided by the researcher in two categories (eg. low = 0 and high =
1). But as this variable is essentially a continuous variable, the division will
always be arbitrary. A second, related problem is the fact that the technique
does not allow an assessment of the effect of the relative strengths of the
independent variables (as they can only have two values).[2] Ragin, and other
scholars such as Lasse Cronqvist, have tried to deal with these issues by
developing new tools that extend QCA, such as Multi-value QCA (mvQCA)
and fuzzy set QCA (fsQCA)