What is the valuation measure that compares price to revenue called?

The valuation measure that compares price to revenue is known as the Revenue Multiple. This metric is commonly used by investors and analysts when evaluating companies, especially in the startup space, where profit indicators like EBITDA may not yet be applicable due to the early-stage nature of many businesses.

The Revenue Multiple provides a way to understand how much investors are willing to pay for each dollar of revenue a company generates. It is calculated by taking the company's valuation (or market capitalization) and dividing it by its total revenue over a specific period, often the last twelve months (LTM). This ratio helps potential investors assess whether a company is overvalued or undervalued relative to its revenue generation capabilities.

In the startup context, this metric is particularly useful as it emphasizes growth potential and market share rather than profitability, which may be minimal or negative in the early years. This focus on revenue allows investors to gauge the scale and scope of a startup's operations, making it a pivotal consideration for investment decisions.