What is EV/sales?
Enterprise value-to-sales is a business valuation method that compares the total value of a company with its sales. Sales is defined as the value of the products a company sells in a given year.
Where have you heard about EV/sales?
EV/sales is one of a number of techniques used to assess how much a business would be worth in the event of a takeover. It helps investors to gain a better understanding of how much it would cost to buy the sales of a company.
What you need to know about EV/sales.
To calculate EV/sales, you simply divide the enterprise value of the company by its annual sales.
Generally speaking, a low ratio is preferable because it indicates that a company has high sales relative to its value. However, a high ratio can show that investors believe sales will soon rise.
The measurement expands on the price-to-sales ratio, which helps to determine a stock’s relative value. EV/sales is perceived by some analysts to be more accurate than P/S because enterprise value considers both debt and equity holders.
Find out more about EV/sales.
Read our definitions of EV/EBITDA and price-to-sales ratio.