EV/Revenue

EV/Revenue shows how much the whole business, including debt, is valued for each unit of sales. It is the enterprise value equivalent of the price-to-sales ratio.

For example, a company with an enterprise value of 600 million and annual revenue of 200 million has an EV/Revenue multiple of 3.

The multiple is especially useful for companies that are not yet profitable or have negative EBITDA, such as early-stage technology or biotech businesses, where earnings-based multiples cannot be used. It is also used in industries where companies are often compared on sales, such as software.

Because it includes debt, EV/Revenue is better than the price-to-sales ratio for comparing companies with different capital structures.

Its main weakness is that it ignores profitability entirely. Two companies with the same revenue can deserve very different values depending on their profit margins and growth. EV/Revenue multiples should therefore be compared between companies with similar margins and growth prospects, and are usually combined with other measures.