Enterprise to Revenue

Enterprise value to revenue (EV/Revenue or EV/Sales) compares a company's total enterprise value to its annual revenue. This ratio provides a capital-structure-neutral view of how the market values each unit of sales, making it useful for comparing companies with different debt levels or for valuing businesses that don't yet generate positive earnings.

The calculation uses enterprise value in the numerator:

EV/Revenue = Enterprise Value / Total Revenue (TTM)

For example, a company with $15 billion in enterprise value generating $5 billion in revenue has an EV/Revenue ratio of 3.0. The market values the entire business at 3 times its annual sales.

EV/Revenue differs from P/S ratio because it accounts for capital structure:

If Company A: Market Cap $10B, Debt $0, Cash $2B, Revenue $5B
   P/S = 2.0, EV/Revenue = 1.6

If Company B: Market Cap $8B, Debt $4B, Cash $1B, Revenue $5B
   P/S = 1.6, EV/Revenue = 2.2

Company B appears cheaper on P/S but more expensive on EV/Revenue—the difference is debt burden.

Typical ranges vary by industry:

• High-growth SaaS: 10-30x revenue for rapidly growing recurring revenue businesses
• Mature technology: 2-6x for established tech with slower growth
• Manufacturing: 0.5-2x for capital-intensive industrial businesses
• Retail: 0.3-1x for low-margin, high-volume retailers

Key applications:

• M&A comparisons: Acquirers often value targets as multiples of revenue
• Pre-profit companies: Enables valuation when earnings multiples don't apply
• Leveraged companies: Accounts for debt that P/S ignores
• Cross-sector screening: Identifies potentially undervalued businesses

Limitations include ignoring profitability entirely—a company burning cash to generate unprofitable revenue might have low EV/Revenue for good reason. Always consider alongside margin trajectory and path to profitability. High EV/Revenue for an unprofitable company requires strong conviction in future margin expansion.