Which is one of the main criteria used to select comparable companies/precedent transactions?

• A. Industry classification
• B. Geography
• C. CEO experience
• D. Employee count

Answer: (A)

When selecting comparable companies, you want peers that operate in the same line of business. Industry classification groups firms by what they actually do—same products or services, same end markets, and similar operating dynamics. This alignment means their revenue drivers, cost structures, margins, and capital needs tend to move together, so valuation multiples like EV/EBITDA or P/E are meaningfully comparable.

Geography can influence factors like taxes, regulation, and macro conditions, but it’s secondary to being in the same industry. CEO experience or employee count don’t directly determine how a company is valued across peers, since they don’t consistently reflect the same operating profile or profitability drivers.

So, industry classification is the best criterion because it ensures you’re comparing companies with similar business models and economics.