Definition
EV/Revenue values a company relative to its top line, making it essential for valuing unprofitable high-growth companies where earnings-based metrics don't apply. SaaS companies, biotech, and early-stage tech firms are commonly valued on EV/Revenue. The multiple should be interpreted alongside growth rate and path to profitability.
functions Formula
EV/Revenue = Enterprise Value / Annual Revenue
lightbulb Example
A SaaS company has EV of $2B and revenue of $200M. EV/Revenue = 10x. At 50% growth and 80% gross margins, this may be reasonable; at 10% growth it would be excessive.
verified_user Key Points
- Essential for unprofitable growth companies
- Must consider growth rate and margin trajectory
- SaaS "Rule of 40" = growth + margin should exceed 40%
- Ranges vary enormously by sector and growth rate