When selecting comparable companies, what is the first key action to take?

The first key action to take when selecting comparable companies is to study the target company. This initial step is critical because understanding the target company's business model, products, services, and market positioning provides a foundation for identifying appropriate peers. By analyzing the target's financials, operational metrics, and industry context, you can more effectively determine which companies share similar characteristics, making them suitable for comparison.

Knowing the specifics of the target company will inform the criteria used in subsequent steps, such as defining the relevant financial metrics and screening for comparable firms. This foundational analysis ensures that the comparisons made later are meaningful and relevant, contributing to a more accurate valuation or analysis. Therefore, focusing on the target company first allows for a more nuanced approach when selecting comparables.