Both EV/Revenue and P/S ratio measure valuation relative to revenue. They differ in how they define "value" in the numerator.
P/S Ratio: Market Cap ÷ Revenue
P/S = Market Capitalization ÷ Annual Revenue
Market cap = share price × shares outstanding. For private companies, it's the post-money valuation. This is the simplest metric and the most commonly used for early-stage companies.
EV/Revenue: Enterprise Value ÷ Revenue
EV = Market Cap + Total Debt − Cash & Equivalents
EV/Revenue = Enterprise Value ÷ Annual Revenue
EV adjusts for capital structure differences between companies. A company with $50M cash on its balance sheet has a lower EV than market cap — the cash is "already there" and doesn't need to be valued in the multiple.
When They Diverge
For a typical VC-backed SaaS startup with $2M cash and no debt: - Market Cap (post-money): $80M - EV: $80M − $2M = $78M - Difference: ~2.5% — essentially the same
For a public company with $1B cash and $500M debt: - Market Cap: $8B - EV: $8B + $500M − $1B = $7.5B - Difference: 6.25% — meaningful
Which Do Investors Use?
Strategic acquirers prefer EV/Revenue because they're acquiring the business net of cash and debt. A $100M acquisition of a company with $10M cash costs $90M net — EV/Revenue reflects this.
VC investors often use ARR multiple (post-money ÷ ARR) interchangeably with P/S because most Series A/B companies have minimal debt and low cash relative to valuation.
Public market analysts use EV/Revenue as the standard to compare companies with different capital structures.
Use the Price-to-Sales Calculator to model both metrics.