Before diving into alternative metrics, let's understand why conventional valuation tools break down for loss-making tech companies:

P/E Ratio:** Cannot be calculated when earnings are negative. A company burning ₹1,000 crore annually has no meaningful P/E.

P/B Ratio:** Tech companies often have negative book value due to accumulated losses. Even with positive book value, intangible assets (brand, technology, network effects) aren't captured.

Dividend Yield:** Loss-making companies don't pay dividends. This metric is irrelevant.

ROE/ROCE:** Negative earnings mean negative returns. These metrics become meaningless or misleading.

The fundamental issue: traditional metrics assume a company is already profitable and valued based on current earnings. Tech startups are valued on future potential—what they could earn once they achieve scale.

EV/Revenue is the most widely used metric for loss-making companies. It tells you how much you're paying for each rupee of revenue the company generates.

Formula:** ``` EV/Revenue = (Market Cap + Debt - Cash) / Annual Revenue ```

Interpretation:** - Lower is cheaper (all else equal) - High-growth companies command higher multiples - Compare within sectors, not across industries

Analysis:** - Zomato trades at 19x revenue but is growing 67%—the market is pricing in continued hypergrowth - Paytm at 3.7x revenue with 25% growth looks 'cheap' but reflects concerns about business model sustainability - Delhivery at 3x with only 12% growth is being valued like a mature logistics company, not a tech platform

Burn rate measures how fast a company is consuming cash. Combined with cash reserves, it tells you the 'runway'—how long the company can survive without additional funding.

Formulas:** ``` Monthly Burn Rate = (Cash at Start - Cash at End) / Number of Months Cash Runway = Current Cash / Monthly Burn Rate ```

Why It Matters:** - Companies that run out of cash die, regardless of how good the business is - Shorter runway = higher risk of dilutive fundraising or distress - Improving (declining) burn rate signals operational progress

*Pre-IPO estimates

Key Insight:** Listed Indian tech companies generally have strong balance sheets post-IPO. The real risk is in private startups that may need to raise capital in adverse conditions.

Customer Acquisition Cost (CAC) Payback Period measures how long it takes to recover the cost of acquiring a customer through their purchases.

Formula:** ``` CAC Payback = Customer Acquisition Cost / (Monthly Revenue per Customer × Gross Margin) ```

Interpretation:** - Payback < 12 months: Excellent—can reinvest quickly - Payback 12-24 months: Good for most consumer businesses - Payback 24-36 months: Acceptable for high-LTV businesses - Payback > 36 months: Concerning—may never recover CAC

Analysis:** - Blinkit's 3-month payback is exceptional—customers become profitable very quickly - PolicyBazaar's 45-month payback looks concerning until you realize insurance customers have 10+ year LTV - Context matters: high-frequency businesses (food delivery) need short payback; high-value, low-frequency (insurance) can tolerate longer

Unit economics examines whether a company makes money on each transaction, before fixed costs. Contribution margin positive means the core business model works; fixed costs just need to be spread over more volume.

Formula:** ``` Contribution Margin = Revenue per Unit - Variable Costs per Unit Contribution Margin % = Contribution Margin / Revenue per Unit × 100 ```

Why It Matters:** - Contribution margin positive: Business model works, losses are just scale problem - Contribution margin negative: Fundamental business model issue—more volume = more losses

Analysis:** - Zomato, Blinkit, Nykaa all have healthy 25%+ contribution margins—the business model works - Delhivery's 8% CM is thin, explaining why it needs massive scale to be profitable - Paytm's payments business has good CM but tiny absolute margins (₹0.70/transaction), requiring enormous volume

The 'Magic Number' measures how efficiently sales and marketing spend converts to revenue growth:

Formula:** ``` Magic Number = (Current Quarter Revenue - Prior Quarter Revenue) × 4 / Prior Quarter S&M Spend ```

Interpretation:** - Magic Number > 1.0: Excellent—each ₹1 of S&M generates >₹1 of annualized revenue - Magic Number 0.75-1.0: Good efficiency - Magic Number 0.5-0.75: Acceptable, room for improvement - Magic Number < 0.5: Poor—inefficient growth