Enterprise Value-to-Revenue (EV/R) Multiple

What it is

The Enterprise Value-to-Revenue (EV/R) multiple compares a company’s enterprise value (EV) to its revenue. It shows how much an acquirer would pay for each dollar of the company’s revenue and is especially useful for firms with low or negative profits, where earnings-based multiples are not meaningful.

How to calculate

EV/R = Enterprise Value / Revenue

A common (simple) EV formula:
Enterprise Value = Market Capitalization + Total Debt − Cash and Cash Equivalents

A more complete EV may include:
Enterprise Value = Market Capitalization + Debt + Preferred Stock + Minority Interest − Cash

Use consistent revenue (e.g., trailing twelve months or forecasted revenue) across comparisons.

Example

Given:
– Shares outstanding: 10,000,000
– Share price: $17.50 → Market cap = $175,000,000
– Short-term liabilities: $20,000,000
– Long-term liabilities: $30,000,000 → Total debt = $50,000,000
– Assets: $125,000,000 with 10% cash → Cash = $12,500,000
– Revenue (last year): $85,000,000

Calculate EV:
EV = $175,000,000 + $50,000,000 − $12,500,000 = $212,500,000

Calculate EV/R:
EV/R = $212,500,000 / $85,000,000 = 2.5

Interpretation: an acquirer would be paying $2.50 for each $1 of the company’s annual revenue.

EV/R vs EV/EBITDA

• EV/R measures the relationship between enterprise value and top-line revenue (no operating costs considered).
• EV/EBITDA measures EV relative to operating cash generation (accounts for operating expenses and profitability).
  Use EV/R for early-stage or unprofitable companies where EBITDA is not meaningful; use EV/EBITDA for more mature, profitable businesses.

Strengths and limitations

Strengths:
* Simple to compute and interpret.
Useful for comparing companies with little or no profit.
Accounts for capital structure (debt and cash) via enterprise value.

Limitations:
* Ignores profitability and operating efficiency—companies with identical EV/R can have very different margins and cash flows.
Industry norms vary widely; EV/R is meaningful only when comparing similar businesses.
Sensitive to one-time items, different accounting treatments, and non-operating assets.
* Does not substitute for detailed valuation methods (DCF, multiples that incorporate earnings).

Best practices

• Compare EV/R only among peers in the same industry and using the same revenue basis (trailing vs. forward).
• Combine EV/R with profitability, growth, and cash-flow metrics (EV/EBITDA, gross margin, revenue growth, free cash flow).
• Adjust EV to include preferred stock and minority interests when material.
• Consider capital intensity and margin profiles—high EV/R may be justified by superior margins or growth prospects.

Key takeaways

• EV/R = Enterprise Value / Revenue; it shows the price paid per dollar of revenue.
• Useful for valuing companies with low or negative earnings, and for acquisition analysis because it accounts for debt and cash.
• Best used relative to industry peers and alongside other metrics (EV/EBITDA, margins, growth) for a fuller valuation picture.