Relation of “Peer Group” to a Company’s Industry Classification

A company's industry classification is the beginning of constructing a peer group, since all companies that work in a particular area are listed together. Analysts then research into the company's business to see if all members of the peer group are in fact similar in nature and comparable. Necessary omissions or additions are then made.

Analysts develop a peer group in the following way:

  • Use a classification system that is available; identify the company that is being evaluated.

  • Research annual reports and other available financial data regarding nature of business, size etc.

  • Collect information regarding competitors from annual reports or trade journals and research them as well.

  • Ensure all companies in the peer group derive their revenue from the same source as the subject company.

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