How to compare two companies: the order of checks
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Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Comparing two companies on a single metric almost always leads to the wrong conclusion. A fixed order helps.
First: are they comparable
The same industry, a similar business model, comparable size. A bank and a retailer are not comparable on revenue; extraction and software are not comparable on capital intensity.
Second: scale and trajectory
Revenue and its growth rate over several years. Growth matters more than the level, and the durability of growth matters more than one good year — Quarter and year: why the comparison has to be like for like.
Third: efficiency
Margin and returns over time — Profitability: how much a company earns on what was invested.
Fourth: resilience
Leverage, the repayment schedule, the currency composition of debt — Leverage: how much debt is too much.
Fifth: cash
Free cash flow and its relationship with profit — Free cash flow: what is left for the owner, Earnings quality: how much cash is in the profit.
Sixth: valuation
And only now the multiples — against the industry and against the company's own history.
Seventh: who gets the result
The quality of governance and the record of how minority holders have been treated — Corporate governance: why a minority shareholder should care.
A good business with poor governance can deliver nothing to a shareholder for years.
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Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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