Strategically Comparable Firm-Finding Algorithm (CFFA): A Strategic Management Approach to Valuation

This paper proposes an intuitive valuation framework based on the ideas of strategic management, regression, and portfolio theory. I call the framework the “Comparable Firm Finding Algorithm” (CFFA). The CFFA includes, as a special case, the Compara-ble Company Analysis (CCA), one of the most popular valuation approaches. Although the CFFA generalizes the CCA, it is equally simple, as well as being flexible enough to permit wide applications and variations. Furthermore, since the CFFA is based on re-gression analysis, researchers can easily leverage their data-analysis techniques to incorporate instrument variables, machine learning, and big data. This paper demon-strates the merits of the CFFA by addressing a key challenge in finance, accounting, and strategic management: how to compute the value of intangible strategic resources. The CFFA is also used to identify ESG contributions, to assess intangible (price-to-intangible ratios), to evaluate combinative capabilities, to price entrepreneurial activi-ties, and to develop investment strategies and scenario planning.