Term · Valuation
EV/Sales (EV/Revenue)
In briefEV/Sales, also called EV/Revenue, relates enterprise value to revenue. For still-unprofitable companies the metric allows an initial valuation comparison, but it only becomes meaningful in view of margin, growth, and cash burn.
Definition
EV/Sales relates enterprise value to revenue. The metric is also called EV/Sales or EV/Revenue.
How it is calculated
Formula. EV/Sales = enterprise value ÷ revenue.
Why it matters for small caps
It can enable an initial valuation comparison for still-unprofitable companies. Meaningfulness only emerges together with gross margin, growth, cash burn, and future margin potential.
Common misreadings
- Revenue is valued independently of quality and profitability. A low multiple can reflect a weak business model, high capital intensity, or structural losses.
In the process
Frequently asked
What is the EV/Sales ratio?
It values a company relative to its revenue rather than its profit. This is useful when no reliable earnings figure is yet available.
When do you use EV/Sales?
Above all for young or loss-making companies without reported profit. The metric only becomes meaningful in connection with gross margin, growth, and future margin potential.
What is the weakness of EV/Sales?
Revenue is valued without accounting for quality and profitability. A multiple that appears cheap can reflect a weak business model or structural losses.
Related terms
Sources
Primary
NYU Stern – Aswath Damodaran, Valuation Resources
https://pages.stern.nyu.edu/\~adamodar/
https://pages.stern.nyu.edu/\~adamodar/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.