EV/Revenue = Enterprice Value/Revenue, where:
Enterprise Value = Market Capitalization + Debt - Cash and cash equivalents
Revenue = Total annual revenue
When to use EV/Revenue Ratio
This is commonly used for early-stage or high-growth businesses that do not have positive earnings yet.
Alternative to ratios such as P/E, PEG, EV/EBITDA
Advantages of using EV/Revenue Ratio
It is often beneficial when there are significant differences between accounting policies of the companies. PR ratio, on the other hand, can vary dramatically with changes in accounting policies.
Often used for companies with negative free cash flows or unprofitable companies, for example, a tech startup.
Disadvantages of using EV/Revenue Ratio
Does not take into account the cost structure of the company (different types of expenses that a company incurs and is typically composed of fixed and variable costs).
Ignores profitability and generation of cash flow.
Hard to compare across different industries and different company phases (early-stage vs mature companies).