💼 Valuation Metric

Valuation Metric#

A quantitative measure used to value a company or a customer relationship.

Important

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What it is#

A valuation metric is a financial ratio that measures a company’s value relative to a fundamental — earnings, revenue, cash flow or assets — so investors can judge whether it is cheap or expensive versus peers. Which metric fits depends on the company’s stage (startup vs mature), industry, and profitability.

Metrics for profitable, public companies#

P/E (Price-to-Earnings) — $\text{Share Price} / \text{EPS}$; what investors pay per $1 of earnings.
P/S (Price-to-Sales) — $\text{Market Cap} / \text{Revenue}$; useful when there is no profit yet.
P/B (Price-to-Book) — $\text{Market Cap} / \text{Book Value}$; market value vs net assets.
EV/EBITDA — enterprise value over earnings before interest, taxes, depreciation and amortisation; adjusts for debt and cash, common in private equity and M&A.

Metrics for startups and high-growth companies#

EV/Revenue — revenue multiples, standard for pre-profit SaaS and D2C.
Rule of 40 — $\text{growth (\%)} + \text{EBITDA margin (\%)} \ge 40$.
LTV:CAC ratio — acquisition efficiency; investors look for $\ge 3$.
Burn multiple — $\text{Net Burn} / \text{Net New ARR}$; how much cash is consumed per dollar of new recurring revenue.

Worked example#

A SaaS company with revenue $50M, EBITDA $10M and enterprise value $350M trades at EV/Revenue = 7× and EV/EBITDA = 35×. Investors compare those multiples to peers to judge over- or under-valuation.

Why it matters#

Valuation metrics give a standardised way to compare companies and anchor M&A negotiations, VC funding rounds and IPO pricing — always reflecting the market’s trade-off between growth and profitability. Mature firms lean on P/E and EV/EBITDA; growth firms on EV/Revenue, Rule of 40 and LTV:CAC.

Theme: Business & Growth Analytics · All terminology

Hint

Mind map — connected ideas

LTV:CAC Ratio · SaaS (Software as a Service) · Gross Margin · D2C (Direct-to-Consumer)

Hint

More in Business & Growth Analytics

Blended CAC (Customer Acquisition Cost) · CAC (Customer Acquisition Cost) · Cannibalization · Channel-Specific CAC (Customer Acquisition Cost) · Churn · Cohort · Cohort-Based LTV (Simple Version) · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Lifetime · Customer Segmentation · D2C (Direct-to-Consumer)