what does enterprise value to sales tell you 
enterprise value to sales is an expansion of the price to sales p s valuation the latter of which uses market capitalization instead of enterprise value ev sales is perceived to be more accurate than p s in part because the market capitalization alone does not take a company s debt into account when valuing the company while enterprise value does ev to sales multiples are usually found to be between 1x and 3x generally a lower ev sales multiple will indicate that a company may be more attractive or undervalued in the market the ev sales measure can also be negative when the cash balance of the company is greater than the market capitalization and debt structure signaling that the company can essentially be bought with its own cash the ev to sales measure can however be slightly deceptive in that a higher multiple is not always a signal of over valuation a high ev to sales can be a positive sign that investors believe that future sales will greatly increase a lower ev to sales can likewise signal that future sales prospects are not very attractive to make the most out of this metric compare the ev to sales to that of other companies in the same industry and look deeper into the company you are analyzing example of how to use enterprise value to salesassume that a company reports sales for the year of 70 million the company has 10 million of short term liabilities on the books and 25 million of long term liabilities it has 90 million worth of assets with 20 of that in cash lastly the company has 5 million shares of common stock outstanding and the current price of the stock is 25 per share using this scenario the company s enterprise value is ev market cap 5 million shares 25 stock price total debt 10 million 25 million cash 90 million 20 125 million 35 million 18 million 142 million begin aligned text ev text market cap 5 million shares times text 25 stock price quad text total debt 10 million text 25 million quad text cash 90 million times 20 125 text million 35 text million 18 text million 142 text million end aligned ev market cap 5 million shares 25 stock price total debt 10 million 25 million cash 90 million 20 125 million 35 million 18 million 142 million next to find the ev to sales simply divide the calculated enterprise value by sales in this example the ev to sales is ev sales 142 million 70 million 2 03 begin aligned text ev sales frac 142 text million 70 text million 2 03 end aligned ev sales 70 million 142 million 2 03 taking the ev sales ratio a step further consider coca cola the company has a market cap of 237 billion as of dec 31 2019 1enterprise value to sales vs price to salesthe ev to sales ratio takes into account the debt and cash a company has the price to sales ratio meanwhile does not the price to sales ratio is quicker to calculate using only a company s market cap as the numerator however debtholders do have a claim on sales and should theoretically be included in the valuation limitations of using enterprise value to salesthe ev sales ratio requires calculating the enterprise value which involves a little more digging into financial statements ev is generally used for valuing acquisitions where the acquirer will assume the debt of the company but also get the cash another limitation to be aware of is that sales do not take into account a company s expenses or taxes 