# EV/S Calculation

In his original post here (https://discussion.fool.com/portfolio-valuation-update-34109850…), Ethan calculates the ZS EV/S ratio as 23.8. Later, Greg calculates it here (https://discussion.fool.com/great-commentary-ethan-thanks-for-th…) as 30.11. ZS has 214m in TTM sales, so Ethan has them as a 5.1 billion dollar company and Greg has them as a 6.4 billion dollar company. So…it’s worth examining the differences.

Here’s the relevant info
Share Price: 45.01
TTM Sales: 214m
Cash minus Debt: 314m
Shares Outstanding: 133.9m fully diluted, 120.6 million not counting potentially diluted shares (this is probably the discrepancy, so let’s calculate it both ways)

Fully Diluted
45.01 * 133.8m = Mkt Cap of 6.0 billion
Minus 314m = EV of 5.7 billion
Divided by 214m = EV/S of 26.7

Not counting potentially diluted shares
45.01 * 120.6m = Mkt Cap of 5.4 billion
Minus 314m = EV of 5.1 billion
Divided by 214m = EV/S of 23.9

Looks like Ethan probably used non-fully diluted shares. Not sure what Greg did – maybe he can weigh in. (Greg, is it possible you accidentally added cash to mkt cap instead of subtracting?)

I thought this would be instructive for the board. Shares Outstanding can be difficult to surmise (not to mention that with SBC and potentially other forms of dilution, it’s always changing), but as you can see, it can make a huge difference (a EV/S of almost 27! vs and EV/S of under 24). It’s worth a little more effort than I’ve given it henceforth, thus this post.

Hope this helps.

Bear

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Good post. I’ve asked before on this board when EV/S numbers are posted to no avail, but it is important that posters include their inputs so others can determine if they look correct or not. We need to know the Share Count used, Cash Amount, Debt Amount, and whether they are using Forward Revenue Estimates or TTM. As my elementary school math teacher used to say, “show your work.”

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Bear,

Pondering on Cash minus debt of \$314M in your calc.

I see Cash \$43M + Short Term Investment \$271M = total \$314M. Then total debt of \$206M. So cash minus debt shall be \$108M, right?

Share counts: 120.6M shares is “Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted”. If we are using TTM sales, shouldn’t we be consistent and just count the existing fully diluted 120.6M shares vs including the potentially diluted share counts?

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RE: Capitalism,
market cap uses shares outstanding, if you check market cap at any of the major websites they will be using shares outstanding.
Enterprise value is market cap + debt - cash/ttm sales. I do think it is helpful to denote if you are doing something different than above.

I’ve asked before on this board when EV/S numbers are posted to no avail, but it is important that posters include their inputs so others can determine if they look correct or not. We need to know the Share Count used, Cash Amount, Debt Amount, and whether they are using Forward Revenue Estimates or TTM

ultimately if you want something you are welcome to contribute like bear did.

RE: Bear
just some general comments

Using fully diluted shares for EV/S is an interesting idea but adds some potential noise and I’m not sure one gains anything by doing so. My main issue with using fully diluted shares is that those are just “potential” shares, not actually exercised warrants or options etc. One should be tracking SBC and dilution separately anyways.

All in all in most cases I don’t think it matters much since I’m in the camp that thinks that ev/s can’t really be used to compare companies very well. As long as you calculate the EV/S the same way each time then if ZS’s ev/s is 27 or 24 ultimately it doesn’t matter so much as your entire range will be shifted.

Anywho, great post, always good for people to know the nitty gritty.

-ethan

oh, one last general comment. I think valuations, DCF, etc can be an exercise in false precision. I think getting a gestalt from them is more important than trying to figure out anything exact.

20 Likes

Thanks for the check Bear, really appreciate the time you took to do this.

Gregs approach was to make a mistake. My TTM Revenue was wrong, because ZS is a recent IPO and I hadn’t checked for having four full quarters of revenue data.

Doh! Have added a check to the code to prevent that happening again.

Shares (basic): 119,773,132
Price: 45.32
Debt: 0.0
Cash: 42786000
Revenue: 213611000
Investments (current): 271254000.0
Market cap: 5.42b
EV: 5.11b
EV/S: 23.94

The calculations I use are:
MarketCap = shares_basic * close
EV = marketCap + debt - (‘cash and equiv’ + ‘investment (current)’)

Thanks again for the check, great to know someones got your back, and apologies for the mistake.

cheers
Greg

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