Enterprise Value: A Better Measuring Stick for Growth
When planning for growth, most entrepreneurs default to revenue as their primary yardstick. But a far better metric is enterprise value (EV) — and here are three reasons why.
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Enterprise value (EV) reflects what actually drives valuation.
Even entrepreneurs who aren’t steeped in capital markets understand that businesses aren’t valued on revenue alone. They also know that increasing the value of the company matters more than simply increasing sales. Yet many don’t routinely calculate EV, which means they aren’t focusing on the levers that truly move it which is growing EBITDA, reducing debt, and increasing cash. Regularly calculating EBITDA sharpens attention on these drivers.
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Enterprise Value (EV) forces a focus on cash flow, costs, and margins.
In today’s higher‑inflation environment, many companies struggle less with top‑line growth and more with maintaining profitability as costs rise. By emphasizing EV and EBITDA, leaders stay closely attuned to margins and cash flow. And unlike revenue growth — which often consumes cash — EBITDA growth increases available cash, strengthening the business.
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Enterprise Value (EV) growth can outpace revenue growth.
This is subtle but powerful: when you calculate EV over time, you may find that you can generate high percentage growth in EV (e.g., greater than 20%) without needing equivalent revenue growth. That insight allows companies to set more achievable revenue targets while still pursuing ambitious EV goals. For example, I worked with a $60M revenue company targeting $7M in additional revenue — an 11% increase — yet its EV growth target was 24%.
The Takeaway
When thinking about growth, take the extra step to project your enterprise value. It can help you set more realistic targets, focus on the metrics that truly matter, and ultimately create more value.
Want more info on Enterprise Value and using it as a tool for strategic planning? Watch this video about Enterprise Value we posted earlier this year.
Read About: Enterprise Value As A Planning Tool
