CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
An analyst is building a peer group for Company X, a regional airline. Which step is most likely the first in the process?
The first step is most likely using a commercial classification to identify an initial set of possible peers. The analyst then refines the list by comparing business activities, revenue sources and financial characteristics, and only afterwards computes valuation multiples for the final group.
- AExamining the peers' financial ratios for similarity
- BCalculating the median valuation multiple of the group
- CUsing a commercial classification to identify an initial set of possible peersCorrect
Explanation
The peer-group process starts with a commercial classification system to build an initial candidate list, then the analyst examines the companies' business activities, revenue sources and financial characteristics to refine it. Valuation multiples are computed only after the final peer set is chosen.
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