What this calculator does
Revenue multiples value a company against its sales rather than its profit, which is the only option when earnings are small, negative or distorted. Early-stage and rapidly growing companies are usually valued this way.
EV/Sales is the more complete of the two, because enterprise value includes debt. A company with $5 million of market capitalisation and $800,000 of net debt trades at 1.93 times $3 million of sales on an EV basis, against only 1.67 times on a price basis.
The formula
Enterprise value is market capitalisation plus debt less cash. Dividing it by annual sales gives EV/Sales, while dividing market capitalisation alone by sales gives Price/Sales.
| Term | Meaning |
|---|---|
| EV/Sales | Enterprise value divided by revenue, which accounts for debt. |
| Price/Sales | Market capitalisation divided by revenue, ignoring the balance sheet. |
| Net debt | Total debt less cash, the difference between the two multiples. |
The inputs explained
| Field | What to enter |
|---|---|
| Market capitalisation ($) | Market capitalisation, being share price times shares outstanding. |
| Total debt ($) | Total interest-bearing debt. |
| Cash & equivalents ($) | Cash and equivalents, which reduce enterprise value. |
| Annual sales (revenue) ($) | Annual revenue. |
When to use it
Valuing a loss-making company
Where there are no earnings to multiply, revenue is the only meaningful base.
Comparing across a sector
Revenue multiples are less distorted by accounting choices than earnings multiples.
Screening early-stage businesses
Growth companies are routinely quoted at a multiple of sales in acquisition talks.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does revenue change the multiple?
The same company at three levels of annual sales.
Questions
Why use revenue rather than profit?
Because revenue is the hardest line to manipulate and the only one available when a company is loss-making. Its weakness is that it says nothing about whether those sales are profitable.
Why is EV/Sales preferred to P/S?
Because a buyer takes on the debt as well as the equity. P/S can make a heavily indebted company look cheap, while EV/Sales accounts for the full cost of acquiring the business.
What multiple is reasonable?
It varies enormously with margin and growth. Software companies with high margins command several times revenue; distribution businesses with thin margins may trade well below one times. Compare within a sector only.
What is the main danger of revenue multiples?
Treating all revenue as equally valuable. A dollar of sales at 80 per cent gross margin is worth far more than a dollar at 10 per cent, and a revenue multiple alone cannot see the difference.
For the enterprise value figure behind it, see the enterprise value calculator. For earnings-based ratios, see the valuation multiples calculator.