The EV/Revenue Formula
Enterprise Value (EV) = Market Cap + Debt − Cash. Revenue = NTM ARR (most common for public SaaS) or trailing twelve months (TTM) for more mature companies. The multiple answers: "how many years of today's revenue is the market willing to pay for this company?"
A company with a $5B market cap, $200M debt, $300M cash, and $500M NTM ARR has an EV of $4.9B and an EV/NTM Revenue multiple of 9.8x. At a 40% growth rate, that is in line with historical medians — not cheap, not expensive.
Why NTM vs TTM Matters
Using trailing revenue understates a high-growth company's true run rate. A SaaS company that ended Q4 at $400M ARR and grew 50% will enter next year at a much higher base. Analysts use consensus NTM estimates from Wall Street models to normalize for this. When consensus doesn't exist (e.g., for private benchmarks), the annualized most-recent-quarter ARR is a common proxy.
This is why comparing EV/TTM across cohorts can mislead: a 60% grower's TTM multiple looks higher than NTM, while a 5% grower's TTM and NTM are nearly identical.
What Moves the Multiple
The EV/Revenue multiple is not arbitrary — it is the market's expectation of long-run FCF margin, discounted back at a required rate of return. That means:
- Higher growth rate → higher future revenue base → higher multiple
- Higher gross margin → more of each revenue dollar reaches FCF → higher multiple
- Higher NRR → durable, compounding revenue base → lower risk → higher multiple. Track this against sector medians in our SaaS metrics glossary
- Lower capital intensity → FCF conversion is less dilutive → higher multiple
- Higher rates → higher discount rate → lower present value of future FCF → lower multiple
Live EV/Revenue Benchmarks by Sector
Current median EV/Revenue and EV/FCF multiples across SaaS sectors, from the SaaSDB benchmark database.
Common Pitfalls When Using EV/Revenue
Comparing across growth cohorts
A 5x multiple at 60% growth is cheaper than a 3x multiple at 10% growth. Always normalize for growth — the PEG ratio equivalent is EV/Revenue ÷ Growth Rate.
Ignoring gross margin
Two companies with the same EV/Revenue can have very different value propositions if one runs 80% gross margins and the other 55%. The high-margin company is actually cheaper in FCF terms.
TTM vs NTM confusion
Mixing time periods across companies gives misleading comparisons. Standardize on NTM for growth companies, TTM for mature ones.
Enterprise value calculation errors
EV includes debt and subtracts cash. Many screens show market cap, not EV. For SaaS companies with convertible notes (very common), check the balance sheet carefully.
When Does EV/Revenue Stop Working?
EV/Revenue is a proxy metric — it works because the market assumes revenue will eventually convert to FCF. Once a company's growth decelerates below ~20% and FCF margins become predictable, analysts shift to EV/FCF or EV/EBITDA. The transition is gradual and company-specific. Read more in Price-to-FCF multiples.