EV / Sales (Enterprise Value to Sales)

EV / Sales is the ratio of a company's enterprise value to its trailing or forward revenue. It is the headline multiple for valuing high-growth, low-profit, or pre-profit companies — typically SaaS, internet, biotech, EV, or new-economy names where earnings-based ratios (PE, EV/EBITDA) are uninformative.

Formula: EV / Sales = Enterprise Value / Revenue. Enterprise Value = Market Cap + Debt − Cash. Use trailing-twelve-month revenue for backward-looking analysis and consensus-forward for forward.

EV/Sales is most useful when comparing companies in the same industry at similar margin profiles. A SaaS company at 12x sales and 80% gross margin is fundamentally different from a retailer at 0.6x sales and 30% gross margin — both might be "correctly priced" on EV/Sales given their unit economics.

Two adjustments improve EV/Sales sharpness: (a) EV / Gross Profit normalises for gross-margin differences; (b) EV / Sales per growth-rate divides by revenue-growth percentage, producing the "Rule of 40" style multiple.

Example 1: An Indian SaaS-listed company trades at Rs 9,000 cr EV with Rs 600 cr TTM revenue — EV/Sales = 15. Industry peer set trades at 8-12x. If the company is growing 50% YoY vs. peers' 25%, the higher multiple may be justified.

Example 2: A retailer with Rs 12,000 cr EV and Rs 30,000 cr revenue — EV/Sales = 0.4. The low multiple reflects thin retail margins; comparing to a SaaS multiple is meaningless.

Use cautiously: EV/Sales rewards revenue growth without judging profitability; many late-2021 SaaS bubble multiples were >30x sales on negative cash flow.

Disclaimer: Educational content from MintByte (ARN-314872, MFD). Examples are illustrative. SEBI Investment Adviser registration is in process; we do not recommend specific stocks.