Enterprise Value-to-Sales (EV/Sales): Essential Guide for 2025

The Enterprise Value-to-Sales (EV/Sales) ratio is fast becoming one of the most talked-about metrics in Australian business and investment circles. With 2025 bringing new market dynamics and regulatory shifts, understanding this powerful valuation tool is more important than ever—whether you’re an investor sizing up ASX-listed tech firms, or a founder negotiating a capital raise.

What is EV/Sales and Why Does It Matter?

Put simply, EV/Sales compares a company’s total enterprise value (EV)—which includes equity, debt, and cash—to its total sales revenue. Unlike the more traditional price-to-earnings (P/E) ratio, EV/Sales doesn’t rely on profits, making it particularly useful for evaluating companies that are growing fast but not yet profitable—think SaaS startups, renewable energy ventures, or even established players in temporary downturns.

• Enterprise Value (EV): Market capitalisation + total debt – cash and cash equivalents.

• Sales: The company’s total revenue over a set period, usually the last 12 months.

In 2025, as the ASX sees a surge of tech IPOs and M&A deals, the EV/Sales ratio is front and centre in boardroom discussions. It offers a more holistic view of a company’s value, factoring in debt and cash positions—crucial in a climate where rising interest rates and capital structure matter more than ever.

How is EV/Sales Used in the Australian Market?

Traditionally, Australian investors leaned on metrics like P/E or price-to-book. But as companies in sectors such as technology, healthcare, and clean energy often reinvest heavily in growth, profits can be elusive. Here’s where EV/Sales shines.

• Growth Sectors: In 2025, the median EV/Sales ratio for ASX-listed SaaS companies sits around 7x, up from 5x in 2023, reflecting investor appetite for scalable business models—even if they’re not yet profitable.

• Comparing Across Industries: While a high EV/Sales ratio may be justified for a high-growth cloud software provider, a mature retail chain might see ratios closer to 1x. Context is everything.

• Private Markets: With venture funding rebounding in Australia post-2024, founders are increasingly benchmarking their valuations using EV/Sales multiples drawn from recent exits and listed peers.

For example, when Australian fintech darling Zeller prepared for its 2025 IPO, analysts cited a 10x EV/Sales multiple, referencing both local and global peers. Meanwhile, renewable energy startups, riding the wave of federal government incentives and the expanded National Reconstruction Fund, are attracting valuations at 4–6x sales—higher than pre-pandemic averages.

Limitations and 2025 Policy Changes Affecting EV/Sales

While EV/Sales can be a powerful indicator, it’s not a silver bullet. A high ratio may signal overvaluation, or simply reflect the market’s expectations for future growth. It also ignores profitability—so two companies with the same EV/Sales ratio could have wildly different underlying economics.

• Interest Rate Sensitivity: With the RBA maintaining a cash rate above 4% into 2025, the cost of debt is impacting enterprise values more directly, especially for leveraged companies.

• Tax and Reporting Changes: The ATO’s 2025 crackdown on revenue recognition practices means investors need to scrutinise sales numbers more closely, particularly for companies using aggressive accounting to inflate top-line figures.

• Sector Disruption: Policy-driven growth in clean tech and the digital economy means historical EV/Sales benchmarks may no longer apply. Investors and founders are increasingly using forward-looking sales estimates and scenario analysis to set fair multiples.

Best Practices for Using EV/Sales in 2025

To make the most of the EV/Sales ratio, Australian investors and founders should:

• Benchmark Within Sectors: Always compare EV/Sales multiples against relevant industry peers, adjusting for growth rates, margins, and capital structure.

• Watch for Outliers: An unusually high ratio can flag market hype or aggressive revenue projections. Dig into the details before making a call.

• Incorporate 2025 Policy Shifts: Factor in the impact of interest rates, ATO compliance trends, and new government incentives when analysing or negotiating valuations.

• Combine With Other Metrics: Use EV/Sales alongside metrics like EV/EBITDA, gross margin, and free cash flow to get a fuller picture of company health.

Case in point: When a Melbourne-based cleantech startup recently secured a $40 million Series B, investors referenced both the company’s 5x EV/Sales multiple and its strong pipeline of government-backed contracts, ensuring the valuation was justified by both current and future revenue streams.

The Bottom Line

In a volatile, innovation-driven Australian market, the EV/Sales ratio offers a flexible, future-focused way to value companies—especially those disrupting their industries or scaling rapidly. With 2025’s regulatory and economic shifts, using EV/Sales wisely can help investors and founders navigate capital raises, IPOs, and acquisitions with more confidence and clarity.