Enterprise-Value-To-Sales - EV/Sales

AAA

DEFINITION of 'Enterprise-Value-To-Sales - EV/Sales'

A valuation measure that compares the enterprise value of a company to the company's sales. EV/sales gives investors an idea of how much it costs to buy the company's sales. This measure is an expansion of the price-to-sales valuation, which uses market capitalization instead of enterprise value. EV/sales is seen as more accurate because market capitalization does not take into account as well as enterprise value the amount of debt a company has, which needs to be paid back at some point. Generally the lower the EV/sales the more attractive or undervalued the company is believed to be.

Enterprise-Value-To-Sales (EV/Sales)

INVESTOPEDIA EXPLAINS 'Enterprise-Value-To-Sales - EV/Sales'

The EV/sales measure can be negative when the cash in the company is more than the market capitalization and debt structure, signaling that the company can essentially be bought with its own cash.

The EV/sales measure can be slightly deceiving: a high EV/Sales is not always a bad thing as it can be a sign that investors believe the future sales will greatly increase. A lower EV/sales can signal that the future sales prospects are not very attractive. It is important to compare the measure to that of other companies in the industry, and to look deeper into the company you are analyzing.

RELATED TERMS
  1. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its ...
  3. Enterprise-Value-To-Revenue Multiple ...

    A measure of the value of a stock that compares a company's enterprise ...
  4. Sales Per Square Foot

    A popular sales metric used in the retailing industry. Sales ...
  5. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  6. Cash And Cash Equivalents - CCE

    An item on the balance sheet that reports the value of a company's ...
RELATED FAQS
  1. How exactly do I use the price to sales ratio to evaluate a stock?

    The price to sales (P/S) ratio is a valuation metric that compares the price of a company’s stock to the total dollar value ... Read Full Answer >>
  2. What is considered a favorable price to sales ratio?

    Price to sales (P/S) ratios between 1 and 2 are generally considered good, and ratios less than 1 are considered excellent. ... Read Full Answer >>
  3. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  4. Does stockholders equity accurately reflect a company's worth?

    Stockholders' equity is one method to evaluate a company's worth. It tends to work better for companies in established industries ... Read Full Answer >>
  5. What are common growth rates that should be analyzed when considering the future ...

    Some of the most common growth rate metrics that investors and analysts consider in evaluating a company's future prospects ... Read Full Answer >>
  6. What metrics are often used to evaluate companies in the drugs sector?

    Some of the equity valuation metrics that analysts and investors most commonly use to evaluate companies in the pharmaceutical ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  2. Fundamental Analysis

    Using Enterprise Value To Compare Companies

    Learn how enterprise value can help investors compare companies with different capital structures.
  3. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  4. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  5. Fundamental Analysis

    Are Fast-Casual Restaurants Overvalued?

    Can fast-casual restaurants actually grow to the levels that investors believe they can?
  6. Charts & Patterns

    Debunking 8 Myths About Technical Analysis

    Investopedia exposes a few common myths about technical analysis.
  7. Economics

    How Gloomy Headlines Support Eurozone Stocks

    It's hard to miss the many headlines on Europe lately with news ranging from Greece’s debt saga to the details of ongoing European Central Bank stimulus.
  8. Fundamental Analysis

    5 Great Stocks You Didn't Know Existed

    If you're looking for new investment opportunities, check out these five stocks that tend to fly under the radar of popular financial media.
  9. Fundamental Analysis

    Why It's The Right Time To Buy Rite Aid

    Recently considered to be a distressed stock, learn whether or not Rite Aid is currently undervalued.
  10. Fundamental Analysis

    Will J.C. Penney Ever Recover?

    After a series of drastic missteps, J.C. Penney may finally be making a turnaround.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!