Below is an EV/GP calculator, or Enterprise Value to Gross Profit Calculator. Enter a company's market capitalization, debt, cash (and equivalents), and gross profit to compute its EV/GP.
EV/Gross Profit Calculator
Using the EV/Gross Profit Calculator
Using a company's annual or quarterly report, fill in the following fields to compute its EV/GP ratio.
- Market capitalization: The total number of outstanding shares of the company multiplied by their value per share.
- Total debt: All short and long-term debt and liabilities listed on the balance sheet.
- Cash and Cash Equivalents: The balance statement's total cash and cash equivalents.
- Gross Profit: Gross profit from the income statement.
Once done, hit the "Compute EV/Gross Profit" button to calculate the ratio – and see Enterprise Value, too.
What is the EV/Gross Profit ratio?
EV/GP, or the Enterprise Value to Gross Profit ratio is a valuation ratio comparing the total capitalization of a company, including any cash or debt, to its gross profit, or revenue minus any costs of goods sold (COGS).
Revenue is the first line of the income statement, and after COGS go out (which scale with sales), the company is left with gross profit. Gross margins vary wildly across the universe of investable companies, but comparable companies generally have similar input costs (making Price to Sales and EV to Sales ratios decent for comparison). Gross profits give you a way to compare companies with different fundamental margins – for example, lower gross margin marketplace companies can be compared to high margin software-only SAAS (Software As A Service) companies.
Of course, gross profit isn't perfect. Whether you look at Price to Gross Profit (which uses market capitalization instead of enterprise value) or EV to Gross Profit, you don't necessarily know the company is a good one – even if it compares well to peers on those metrics. Between operational expenses and capital expenses, there are plenty of things that can go wrong down income statement – so always know what's going on beneath the surface.
