IB INTERVIEW FOUNDATIONS
Trading comparables & normalization
Compare sustainable economics, not just reported multiples.
Comparable companies rarely have identical growth, margins, accounting or risk. Normalize an earnings metric only with defensible adjustments, then consider why the market might assign different multiples. An addback labeled exceptional may still be recurring.
Ask yourself: Would this adjustment make both the subject company and its peers more comparable?
Put it into practice
Use the normalization question to separate a calculation from the evidence needed to accept an addback.
Beyond the calculation
State assumptions before calculating. Explain the result in plain English, then identify what information could change your conclusion. A numerical match alone does not show that your reasoning is sound.