EV to Sales Calculator — Enterprise Value to Sales

The helpful EV to sales calculator helps you calculate the enterprise value to sales valuation ratio, which is highly useful when analyzing companies that are EBITDA negative or earnings negative. In this article, we will not only cover what the EV to sales ratio is and how to calculate it but also explore real-life examples and the most common investor questions.

It is a valuation method that indicates how much the company acquisition cost is relative to its sales.

When a potential parent company (A) wants to acquire another one (B), it must first consider the current market price of B shares and the total amount of shares. That is also known as market capitalization.

Once A has bought all B shares, it is now responsible for B's outstanding debt and has the right over its cash and cash equivalents. Such cash is supposed to be spent to pay the debt at the acquisition time. Consequently, the acquisition cost is the sum of the market cap, the total debt minus the cash.

Since debt and cash affect the enterprise value, EV to sales multiple help investors to uncover hidden information that is not visible with the price multiples we discussed in the price to book ratio calculator or price to cash flow ratio calculator.

Furthermore, EV to sales ratio is different from price to sales ratio because, in the former, you compare enterprise value and not only market cap or price like the latter one. This difference is highly important for companies with appropriate amounts of debt or cash in their balance sheet.

Let's start checking what the formula for the enterprise value to sales ratio is:

1. First, we need to calculate the enterprise value (see the enterprise value calculator for details):

   EV = mkt_cap + tot_debt - cash_eq + pref_shares + minor_int

   where:

   • EV — Enterprise value;
   • tot_debt — Total debt;
   • cash_eq — Cash and cash equivalents;
   • pref_shares — Preferred shares; and
   • minor_int — Minority interest;

   You can get total debt from the company's balance sheet and market capitalization from Google or stock screeners.

2. Second, we extract yearly sales (or revenue) from the income statement. Remember, if you are not checking fiscal year reports, you would have to build the trailing twelve months' revenue value.

3. We use the EV to sales (enterprise value to sales ratio) formula:

   EV to sales = Enterprise value / Sales

You just need to follow a few steps to unleash all the power of our EV to sales calculator:

1. Add the company market capitalization, the total debt, the cash & cash equivalents, the preferred shares, and the minority interest.

2. Add revenue/sales value. Remember, it has to be the fiscal year value or the trailing twelve-month revenue value.

3. Our EV to sales calculator will give you the result.

Let's calculate the EV to sales ratio of UiPath, a public company in the robotic process automation sector. Considering the last available information for today (November 22nd, 2021), we have:

Revenues TTM = 736 million USD

Market cap (November 22nd, 2021) = 25,112 millions USD

Total debt = 26.25 million USD

Cash and cash equivalents = 1,826 millions USD

So, what is the enterprise value of UiPath?

EV = 25,112 + 18.85 - 1,826 = 23,304 millions USD

Then:

EV to sales = 31.66

So, we can say that currently, the stock price is trading at 31 times EV to sales, which would be considered overvalued by several stock market strategists. However, let me tell you that a few months ago, this stock was trading at 85 USD per share, which, compared to the current stock price (48.9 USD), returns a maximum drawdown of -42.5%. Wild loses, eh?

So, let's get the EV to sales value for the time when the stock was trading at 85 USD:

Revenues TTM = 680.76 million USD

Market cap (May 24th, 2021) = 42,570 millions USD

Total debt = 19.22 million USD

Cash and cash equivalents = 1,879 millions USD

EV = 42,570 + 19.22 - 1,879 = 40717.77 millions USD

EV to sales = 59.8

In conclusion, valuation does matter. Another common valuation tool we have is the EBITDA multiple and the price-earnings ratio. Still, when companies have negative EBITDA or earnings per share, there is no other option than using the EV-to-sales ratio.

Finally, when deciding to invest in stocks with EV to sales over 20, it is imperative to review its gross margin. It is critical. A company with an expensive valuation will never sustain its multiple if new competitors start to take market share from it. A way to verify that you have invested in the best company is by checking if it has the most significant gross margin among its peers and, of course, if it can sustain it.