DailyDime

Some growing companies do not have a useful history of EBITDA or earnings. They may be investing ahead of growth, launching new products, or building a team before revenue catches up. An earnings multiple cannot help when earnings do not exist.

That does not mean the company has no value. It means you need a different starting point.

In my experience, EV/Sales is one of the best tools for this situation. It is not perfect. But it is far better than arguing over a forecast that neither side trusts. A good EV/Sales analysis gives the buyer and seller a solid foundation for negotiations.

The simple idea behind an EV/Sales multiple

EV/Sales compares the value of the operating business with its annual revenue.

EV/Sales = Enterprise value / Annual revenue

Enterprise value, or EV, is the value of the whole operating business. A simple version is equity value plus debt, minus cash.

If a company has $8 million of annual revenue and the parties agree on a 2.0x EV/Sales multiple, the enterprise value is $16 million.

$8 million x 2.0 = $16 million enterprise value

The hard part is not the math. The hard part is choosing the right revenue number and a fair multiple.

A simple EV/Sales valuation tool

You do not need a 40-page valuation report to start. Work through these five steps and write down every assumption.

1. Choose the revenue number

Pick one revenue period and label it. Do not compare a company on next year’s forecast with peers valued on last year’s sales.

• Trailing 12 months works well when recent revenue reflects the current business.
• Annualized run-rate revenue can work when the company is growing fast and the latest months are more useful than older ones.
• Next-12-month revenue can work when the forecast is credible and both sides agree on the assumptions.

For most negotiations, trailing revenue or current run-rate revenue gives you the cleanest starting point.

2. Build a reasonable multiple range

Never start with one magic multiple. Build a low, base, and high case from companies and deals that look like the business you are valuing.

Use the same industry, revenue model, customer type, size, and growth rate when possible. Public companies can show how the market prices a sector. Private transactions can show what buyers have paid. Neither one sets the answer by itself.

The wide spread in Damodaran’s January 2026 U.S. sector data makes the point. Aggregate EV/Sales ratios ranged from 0.46x for food wholesalers to 15.70x for semiconductors. Revenue only means something when you understand the business behind it.

Selected U.S. public-market sector ratios:

Source: Damodaran Online, Revenue Multiples by Sector (U.S.), data as of January 2026. These are aggregate sector ratios, not median company multiples.

This is the guardrail. An 8x EV/Sales ask may fit some software or semiconductor companies. It is not a serious starting point for a food wholesaler in a sector near 0.46x unless that company has economics that make it a different business. The industry does not decide the multiple, but it sets the burden of proof.

3. Adjust for the company

The comp range is the starting line. Move within it based on facts.

Factors that support a higher multiple:

• Fast and steady revenue growth.
• High gross margins.
• Recurring revenue or strong repeat purchases.
• Low customer churn.
• Low customer and supplier concentration.
• A clear path to positive cash flow.

Factors that support a lower multiple:

• One customer, supplier, or sales channel drives too much of the business.
• Gross margins are weak or falling.
• Revenue is one-time or hard to predict.
• The company needs a lot of inventory or capital to grow.
• There is no believable path to profit.

A seller should explain why the company belongs near the top of the range. A buyer should explain each discount with a specific risk. That is a real negotiation. Picking the lowest or highest comp is not.

4. Turn the range into enterprise value

Assume the company has $8 million of annual revenue. Here is how a reasonable negotiation range might work:

• Low case: A 1.5x multiple produces a $12 million enterprise value. This case reflects more risk or weaker revenue quality.
• Base case: A 2.0x multiple produces a $16 million enterprise value. This case fits the middle of the peer range.
• High case: A 2.5x multiple produces a $20 million enterprise value. This case requires strong growth and better revenue quality.

This is an example, not a market quote. The multiple must come from a relevant comp set and company-specific facts.

The range does not hide the disagreement. It shows where it lives. At $8 million of revenue, every 0.5x change in the multiple moves enterprise value by $4 million.

5. Convert enterprise value into equity value

Enterprise value is not the same as the money paid to shareholders. A simple equity bridge is:

Equity value = Enterprise value – Debt + Cash

If the base case is a $16 million enterprise value, with $2 million of debt and $500,000 of cash, the simple equity value is $14.5 million. A real deal may also adjust for working capital, debt-like items, transaction costs, and other terms.

Why EV/Sales works when EBITDA does not

EV/Sales does three useful things.

1. It gives both sides a number they can measure today.
2. It ties the discussion to real market evidence.
3. It shows which facts cause the buyer and seller to disagree.

That third point is why I find it useful. The seller may believe growth and repeat revenue earn a premium. The buyer may see concentration and cash burn that demand a discount. EV/Sales gives both sides one framework for discussing those issues.

When EBITDA does not exist, refusing to use EV/Sales does not make the valuation more rigorous. It often leaves the parties arguing over instinct or a long-range forecast. EV/Sales is better than nothing, and a well-built comp set can provide a strong foundation for the deal.

The shortcomings are real

EV/Sales ignores costs. Two companies with the same revenue can have very different values if one earns a 70% gross margin and the other earns 25%.

It can also reward growth that destroys cash. A company should not earn a premium just because it can buy unprofitable revenue.

Public comps create another risk. Public companies are larger, easier to buy and sell, and subject to stricter reporting. They are a reference point, not a private-company price list.

Software Equity Group’s second-quarter 2026 report showed a 3.2x median EV/TTM revenue multiple for its public SaaS index and a 4.0x median for disclosed SaaS M&A deals. The gap is a reminder that trading comps and deal comps track different samples. Do not apply a fixed private-company discount without looking at the data.

These limits do not make EV/Sales useless. They tell you what adjustments and cross-checks to make.

Run one profit check

Before accepting the range, test what the price implies at a normal operating margin.

Implied EV/EBIT = EV/Sales / Expected mature operating margin

At a 2.0x EV/Sales multiple and a 20% mature operating margin, the buyer is paying about 10x mature operating profit. At 4.0x sales and the same margin, the price is 20x mature operating profit.

This check keeps the revenue multiple tied to the profit that must appear later.

When to use a different multiple

If the company already has stable earnings, SDE or EBITDA will often give you a better starting point. Banks, asset-heavy businesses, and marketplaces may also need different measures.

For profitable companies, start with DailyDime’s small business valuation guide. If two buyers value the same company in different ways, the difference between a strategic buyer and a financial buyer may explain part of the gap.

The bottom line

EV/Sales is not a perfect valuation method. It is a practical tool for companies that do not have a useful history of EBITDA or earnings.

Choose the right revenue period. Build a real comp range. Adjust for growth, margins, revenue quality, concentration, and capital needs. Then check the answer against future profit and bridge enterprise value to equity value.

You will not get one unquestionable price. You will get something more useful: a reasonable range that both sides can understand, challenge, and negotiate.