Enterprise Value to Revenue

Enterprise Value (EV) to Revenue is our preferred price-to-sales metric. On our Rule of 40 and SaaS/Cloud Valuations pages, bubble charts are included to help determine whether a company is fairly valued.

The goal of using EV to Revenue is to find an attractive company for the price. For example, using our Rule of 40 model, a number of companies can satisfy our growth and profit margin targets. However, this by itself doesn't make a company a good investment. Combining the model with EV to Revenue can prevent you from overpaying for a stock.

For SaaS/Cloud companies, EV to Revenue will be much higher than the typical company. This is due to software companies being able to create enormous value with few assets, resulting in large profit margins. As a result, it's important to make comparisons among similar companies within the same industry as well as historic averages.

Enterprise Value is preferred over Market Cap because it takes debts and cash balances into account. An in-depth comparison can be found here: Enterprise Value vs. Market Capitalization: What's the Difference?