Enterprise Value to Revenue

Definition

The enterprise value to revenue is a valuation metric used to calculate the value of a company by comparing its enterprise value to its revenue.

Calculation

Enterprise Value to Revenue = Enterprise Value (EV)/Revenue

example:

Company A has an enterprise value of $100,000 and revenue of $10,000 would give them an Enterprise Value to Revenue multiple of 10 ($100,000/$10,000). This means that Company A's value is currently at 10 times its revenue

Why is it important?

The EV/R multiple provides a true value to companies that do not yet have positive earnings. Most often, these companies are in start-up phase or experiencing rapid and high-growth.

Also, lower EV/R can signal undervalued companies.

Financial Glossary Reference

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