How to value a company based on revenue?

Revenue multiples are irrelevant for most mature Swiss SMEs; buyers pay for profit (EBITDA). Only high-growth software (SaaS) or biotech firms are valued on revenue due to their specific cost structures. Valuing a standard SME on revenue is dangerous and leads to gross mispricing. ### Technical Explanation A persistent myth is the 'Revenue Rule of Thumb'. In modern professional M&A, valuation is fundamentally about cash flow generation. Revenue ($Top Line$) measures activity, not wealth creation. Two companies with CHF 10M revenue can have vastly different margins (2% vs 20%), making revenue-based valuation absurd. The market uses EBITDA as the primary proxy for operational cash flow. #### Sector Exceptions: SaaS and Biotech Revenue multiples are standard only in high-growth sectors: 1. SaaS: Investors pay for Annual Recurring Revenue (ARR) and growth. The 'Rule of 40' often dictates valuation. 2. Biotech: Pre-revenue companies are valued on IP pipeline potential. #### The Danger of 'Bar Talk' Valuation Applying a sector-average revenue multiple ignores cost structure. If a company has a lower-than-average margin, a revenue multiple will overvalue it, leading to a failed sale process.