Published on
September 27, 2025
Market Comparables vs. Financial Disclosures
Explore the strengths and challenges of market comparables and financial disclosures in valuing private companies, and learn how to combine them effectively.
When valuing private companies, two main methods dominate: market comparables and financial disclosures. Both have their strengths and challenges, and understanding when to use each - or combine them - is key for accurate valuation.
- Market Comparables: Uses data from similar companies (e.g., P/E, EV/Revenue multiples) to estimate value. Best for quick benchmarks and early-stage companies with limited financial history. Adjustments for scale, growth, and private market discounts (20%-40%) are critical.
- Financial Disclosures (DCF): Relies on internal financial data like cash flow forecasts and audited statements. Ideal for mature businesses with stable revenue and predictable cash flows. Accuracy depends on reliable historical data and projections.
Key Takeaway: Combining these methods often yields the best results. Market comparables set a baseline, while financial disclosures provide deeper insights into growth potential and risks - especially for growth-stage companies navigating funding rounds, M&A, or IPOs.
Quick Comparison:
| Criteria | Market Comparables | Financial Disclosures (DCF) |
|---|---|---|
| Data Source | External market transactions | Internal financial statements |
| Best For | Early-stage companies | Mature businesses with stable cash flow |
| Challenges | Limited private company data | Requires precise projections |
| Key Adjustments | Marketability discounts (20%-40%) | Reliable historical data essential |
Pro Tip: Growth-stage companies should prepare detailed financial models while benchmarking against peers to meet investor expectations and adapt to market conditions.
Market Comparables for Valuation
What Is the Market Comparables Method?
The market comparables method is all about grounding a company’s valuation in real-world market activity. It’s especially useful for growth-stage companies looking to refine their strategies. This approach estimates a private company’s value by drawing comparisons to similar businesses with accessible pricing data. The underlying idea? Companies with comparable characteristics should trade at similar multiples.
This method typically pulls from three key data sources: public company multiples (like P/E, EV/Revenue, or EV/EBITDA), precedent transactions, and industry-specific metrics. For growth-stage companies - particularly those navigating Series B and C funding rounds - it provides a real-world framework for establishing valuation ranges, offering investors a practical way to validate numbers.
Requirements for Market Comparables
Selecting the right peer group is a make-or-break step in this process. The best comparables share several traits: similar business models, target audiences, growth trajectories, and revenue levels. Size matters too - companies should fall within a reasonable range of each other.
For U.S.-based companies, sticking with domestic comparables is often the best route. This avoids complications tied to currency differences, varying accounting standards, and unique market dynamics associated with international peers. If international comparisons are necessary, adjustments must account for these factors.
Other key adjustments include differences in scale, growth rates, and profit margins. It’s also important to factor in the reduced liquidity of private companies, which typically results in a marketability discount of 20%–40%. These adjustments ensure the valuation reflects the nuances of the private market while leveraging U.S. data effectively.
U.S. Market Data Considerations
Once a solid peer group is in place, U.S. market data becomes a powerful tool for benchmarking. The transparency and depth of U.S. public markets provide a wide array of comparable companies across almost every industry. For example, technology companies can tap into hundreds of public SaaS, fintech, and e-commerce businesses listed on NASDAQ and NYSE.
Using dollar-denominated valuations simplifies the process for U.S.-based funding or exit strategies, as it eliminates the need for currency conversions. This is particularly relevant for private companies seeking Series B funding from U.S. investors, where presenting comparable multiples in USD streamlines decision-making.
Another advantage of U.S. market data is its consistency. Public companies file with the SEC under standardized U.S. GAAP reporting, making their financial metrics easier to compare with private companies preparing for institutional investment or IPOs.
Market timing is another critical factor. Valuation multiples can swing widely depending on market conditions, interest rates, and trends within specific sectors. For example, a private company seeking valuation during a market downturn should reference public company multiples from the same period rather than relying on inflated figures from a previous market peak. This approach helps set realistic expectations for fundraising or exit opportunities.
Regional dynamics within the U.S. also play a role in selecting comparables. A fintech company based in New York might find better matches among East Coast financial firms, while a San Francisco-based consumer tech business would likely benefit from analyzing West Coast peers. These regional nuances can provide sharper insights for valuation analysis.
Financial Disclosures in Private Company Valuation
Financial disclosures provide a behind-the-scenes look at a U.S. company's fiscal health. By offering complete financial statements, they allow stakeholders to evaluate the company's viability beyond just external metrics. These internal insights work hand-in-hand with external benchmarks, paving the way for a closer examination of specific financial statements.
Types of Financial Disclosures
Private companies in the U.S. are required to prepare key financial statements for valuation purposes. One of the most important is the balance sheet, which outlines the company's assets, liabilities, and equity. This document, along with other core financial statements, forms the foundation for valuation efforts. These statements are indispensable when projecting future performance and arriving at accurate valuations.
Market Comparables vs Financial Disclosures
Valuing U.S. private companies often revolves around two key approaches, each offering its own set of strengths and challenges.
Method Comparison
Understanding the differences between market comparables and financial disclosures is essential when assessing their application to U.S. businesses.
| Criteria | Market Comparables | Financial Disclosures (DCF) |
|---|---|---|
| Data Source | External market transactions | Internal financial statements and forecasts |
| Estimation Basis | Based on similar companies' market valuations | Based on forecasted cash flows discounted to the present |
| Data Challenges | Limited availability of private company data | Requires reliable historical data and precise projections |
Each method has distinct limitations. Market comparables rely on external benchmarks, but private company data is often scarce. On the other hand, financial disclosures use forecasted cash flows to tailor valuations to a company’s unique profile, but they depend heavily on accurate projections and robust historical data.
The gap between these approaches has grown in recent years. A 2023 Deloitte survey revealed that nearly half (48%) of private company leaders reported a decline in their firm's valuation. More than half attributed this to "investors' valuations of the company", underscoring the difficulties tied to these methods. Valuations often vary significantly due to limited data, differing analyst methodologies, and fluctuating market conditions.
For growth-stage companies, finding the right balance between external market metrics and internal financial realities is crucial.
Combining Both Methods
To improve accuracy, combining market comparables with financial disclosures can address the shortcomings of each method. This hybrid approach allows companies to leverage the strengths of both techniques, creating a more comprehensive valuation.
Financial disclosures offer an internal lens, shedding light on a company’s operational efficiency, growth potential, and cash flow generation. When paired with market comparables, this internal data gains external context and validation. Market comparables help define valuation ranges, while the DCF method focuses on specific growth drivers and risk factors.
This combined approach is particularly effective for growth-stage companies, where historical data may not fully reflect future potential. By using market comparables to establish initial valuation multiples and then refining these with financial disclosure insights, companies can better account for their unique performance and risks.
Given today’s market dynamics, this integration is more important than ever. Surveys point to high acquisition interest, making it critical for valuations to withstand buyer scrutiny. Companies preparing for exits need analyses that blend market awareness with detailed financial justification.
Additionally, this dual-method approach addresses timing issues inherent in each technique. Market comparables can quickly become outdated in volatile markets, while financial projections may overlook sudden shifts. Together, they create a flexible framework that adapts to changing conditions, ensuring valuations remain thorough and credible.
sbb-itb-e766981
Guidance for Growth-Stage Companies
Growth-stage companies face a distinct set of challenges when it comes to choosing and applying valuation methods. Whether you rely on market comparables, financial disclosures, or a mix of both depends on your unique situation, the data you have access to, and your strategic goals.
Selecting the Right Method for Your Business
Choosing the right valuation method hinges on your company’s maturity and market position. If your business has less than two years of operating history, market comparables are often a better fit since limited financial data can make DCF (Discounted Cash Flow) projections unreliable. On the other hand, companies with steady revenue streams and predictable cash flows can use financial disclosures to highlight their value.
In unpredictable markets, combining internal financial data with market benchmarks can help balance rapid valuation changes. For companies preparing for fundraising or M&A deals during uncertain times, showcasing strong internal financials alongside market data can be a winning strategy.
Your industry dynamics also play a key role. For example, technology companies with scalable models may prefer market comparables, especially if similar companies in their field have achieved successful exits. Meanwhile, manufacturing or asset-heavy service businesses might benefit more from financial disclosure methods that consider their cost structures and capital needs.
Timing is another critical factor. If you’re planning to raise capital within the next six months, start building detailed financial projections now. While market comparables can offer quick benchmarks, investors increasingly expect thorough financial models that demonstrate your understanding of growth drivers and unit economics.
Regardless of the method, ensuring your data is accurate and consistent is essential to a credible valuation.
Improving Data Quality and Comparability
Accurate and comparable data is the backbone of any valuation. Focus on real-time, standardized financial reporting, and align your KPIs with industry benchmarks. Customizing KPIs to reflect your unique business drivers can further enhance your valuation.
Pay special attention to cash flow forecasting. Your models should account for factors like seasonal trends, payment terms, and working capital requirements to present a credible financial picture.
Once your data is in order, expert advisors can take your valuation strategy to the next level.
How Phoenix Strategy Group Can Help
Phoenix Strategy Group offers tailored solutions to help growth-stage companies navigate the complexities of valuation. Their expertise spans financial modeling, market analysis, and strategic advisory services, ensuring a comprehensive approach to valuation challenges.
Their fractional CFO services provide senior financial leadership without the expense of a full-time executive. This includes creating integrated financial models that merge market benchmarks with detailed cash flow projections, giving you the hybrid valuation approach that today’s investors demand.
Through their financial planning and analysis (FP&A) systems, Phoenix Strategy Group transforms raw financial data into actionable insights. Their proprietary Monday Morning Metrics system delivers real-time visibility into key performance indicators, ensuring valuation models reflect your current business performance rather than outdated data.
Phoenix also tackles the technical side of valuation with their data engineering capabilities. By syncing data across systems, they eliminate manual processes that can lead to errors, providing a clean and reliable foundation for both internal decisions and external valuation efforts.
For companies gearing up for M&A transactions, Phoenix Strategy Group offers comprehensive support, from identifying potential buyers to preparing financial due diligence and optimizing valuations. Their experience with growth-stage exits ensures that your financial story is presented in a way that resonates with sophisticated buyers while maximizing your value.
They also provide revenue engine analysis and unit economics evaluation to help you identify and articulate your core value drivers. This analysis is crucial for both DCF models and market comparable positioning, ensuring your valuation reflects your true growth potential and competitive edge.
Phoenix’s integrated approach addresses the common pitfalls of disconnected financial systems and inconsistent reporting. Their Weekly Accounting System keeps your financial data up-to-date and accurate, supporting both everyday business decisions and valuation exercises when needed.
Conclusion
Choosing between market comparables and financial disclosures for valuing a private company isn’t about picking one over the other. Both methods bring unique strengths, and combining them often delivers the most complete understanding of your company’s value.
Market comparables provide quick, external benchmarks based on real-world transactions. They’re especially useful for early-stage companies with limited financial history, offering a snapshot of how similar businesses are valued within the same industry.
On the other hand, financial disclosures shine when you have strong internal data and a stable business model. They allow you to showcase cash flow projections, unit economics, and specific growth factors that go beyond industry averages. However, these insights are only as good as the data behind them, making accuracy and consistent reporting critical to building investor trust.
For growth-stage companies, blending these two approaches is often the most effective route. Market comparables set the baseline, giving context to your valuation, while detailed financial disclosures emphasize your unique strengths and growth potential. This combination becomes especially important during fundraising or M&A activities, where investors and buyers expect both broad market insights and in-depth financial analysis.
Executing this dual strategy requires precision and the right tools. Investing in strong financial systems - such as real-time reporting and integrated forecasting - can lead to more accurate valuations and smoother capital-raising processes. Clean, reliable data and a solid analytical framework are essential for presenting a valuation that reflects both market trends and your company’s distinct advantages.
FAQs
How does combining market comparables with financial disclosures improve private company valuation?
Combining market comparables with financial disclosures gives a fuller picture when valuing a private company. Market comparables act as a benchmark, using data from similar public companies to show how the market values businesses in the same industry or with comparable traits.
Meanwhile, financial disclosures dive into the company’s internal workings - covering details like revenue, cash flow, expenses, and assets. By merging these two approaches, you align external market trends with the company’s internal financial reality, leading to a valuation that’s both balanced and dependable.
What challenges arise when choosing comparable companies for valuation, and how can they be resolved?
Selecting an appropriate peer group for market comparables is no easy task. Factors like industry differences, company size, growth patterns, geographic focus, and financial structures all influence the accuracy of valuation comparisons. On top of that, limited data or the distinct nature of certain sectors - such as niche markets or early-stage businesses - can make finding truly comparable peers even trickier.
The key to overcoming these hurdles lies in establishing well-defined selection criteria that closely match the company's unique characteristics. Relying on a mix of metrics and cross-referencing data from various reliable sources can help ensure the peer group is relevant. This approach leads to more dependable valuation outcomes.
Why do growth-stage companies need detailed financial models for valuations using market comparables and financial disclosures?
Detailed financial models play a crucial role for growth-stage companies, offering a structured way to assess projected performance. These models help businesses pinpoint relevant market data, analyze comparability, and predict future cash flows - key factors in achieving accurate valuations.
By incorporating methods such as market comparables or financial disclosures, a well-built financial model ensures the valuation aligns with the company’s specific growth path and market standing. This accuracy becomes even more critical in fast-changing environments where strategic decisions and funding opportunities hinge on dependable financial insights.
