EV to Sales Calculator - Enterprise Value to Sales

What Is Enterprise Value to Sales?

Enterprise Value to Sales (EV/Sales) is a financial ratio that compares a company's total business value with the revenue it generates. It helps investors understand how much they are paying for every dollar of a company's sales.

Enterprise value (EV) represents the overall value of a company's operating business. It generally considers the company's market capitalization, debt, and cash. Sales, also called revenue, refers to the total income a company earns from selling its products or services over a specific period, usually the last 12 months.

The EV/Sales ratio helps investors compare companies in the same industry and understand how the market values their revenue.

EV to Sales Ratio Formula

The Enterprise Value to Sales (EV to Sales) ratio measures how much investors are valuing a company compared with the revenue it generates. It is calculated by dividing the company's enterprise value by its annual revenue.

The formula is:

EV to Sales Ratio = Enterprise Value ÷ Annual Revenue

Here is what each component means:

• Enterprise Value (EV): The estimated total value of a company's business, generally calculated using its market capitalization, total debt, and cash and cash equivalents.
• Annual Revenue: The total sales a company generates over a year, before deducting expenses.
• EV to Sales Ratio: Shows how much investors are paying in enterprise value for every dollar of annual revenue the company generates.

EV to Sales Ratio Calculation Example

Using the formula:

EV to Sales Ratio = $50 million ÷ $10 million = 5x

The company's EV to Sales ratio is 5x, meaning its enterprise value is five times its annual revenue.

When calculating the ratio, make sure both figures use the same currency and that the revenue period is consistent. For example, using revenue from the last 12 months (trailing-twelve-month revenue) may produce a different result from using projected revenue for the next 12 months (forward revenue).

An EV to Sales Calculator makes this calculation easier by allowing you to enter the company's enterprise value and annual revenue to determine its ratio quickly.

How to Use the EV to Sales Calculator

The EV to Sales Calculator helps you calculate a company's enterprise value-to-sales ratio using its valuation components and annual revenue. Follow these simple steps to estimate how the market values a company relative to its sales.

1. Enter Market Capitalization: Add the company's total market value of outstanding shares. You can calculate it by multiplying the current share price by the total number of shares outstanding.
2. Enter Total Debt: Add the company's short-term and long-term debt to account for its outstanding financial obligations.
3. Enter Cash and Equivalents: Include cash, cash equivalents, and marketable securities held by the company. These amounts are deducted when calculating enterprise value.
4. Add Minority Interest and Preferred Shares: Enter the value of minority interest and preferred shares, if applicable, to account for these additional claims on the company's value.
5. Enter Annual Revenue: Add the company's trailing twelve-month (TTM) revenue, which represents its total sales over the most recent 12 months.
6. Calculate the EV-to-Sales Ratio: Click the Calculate button to determine the company's enterprise value and divide it by annual revenue.
7. View the Calculation Breakdown: If you enable the Show Calculation Breakdown option, you can review the individual components used to calculate enterprise value and the final ratio.

Example

Suppose a company has a market capitalization of $400 million, total debt of $150 million, cash and equivalents of $50 million, minority interest of $10 million, preferred shares of $10 million, and annual revenue of $100 million.

Its enterprise value would be:

Enterprise Value = $400M + $150M − $50M + $10M + $10M = $520 million

The EV-to-sales ratio would be:

EV-to-Sales Ratio = $520M ÷ $100M = 5.2x

This means the company's enterprise value is 5.2 times its annual revenue. You can use this ratio to compare companies in the same industry, but consider profitability, growth prospects, and financial risks before drawing conclusions about valuation.

Frequently Asked Questions (FAQs)