The Price/Sales Ratio measures the price of a company’s stock against its annual sales, instead of earnings. It is calculated by dividing the company’s market cap by the total revenues of the company. It is also calculated by dividing the per-share stock price by the per-share revenue. Much like P/E, the P/S number reflects the how many times investors are paying for every rupee of a company’s sales.
The lower the P/S, the better the value, The smaller this ratio (i.e. less than 1.0) is thought to be a better investment since the investor is paying less for each unit of sales.
A company may be unprofitable with a low P/S ratio because sales do not reveal the whole picture without considering operating expenses for new company and this ratio is used only for unprofitable companies, since they don’t have a price/earnings ratio (P/E ratio).
How to calculate Price/Sales Ratio?
It is calculated as follows:
NEXT – Market Test Ratios: Price/Earnings To Growth Ratio
Table of Contents
1) Market Test Ratios: Introduction
2) Market Test Ratios: Earning per Share Ratio
3) Market Test Ratios: P/E Ratio
4) Market Test Ratios: Payout Ratio
5) Market Test Ratios: Dividend Yield Ratio
6) Market Test Ratios: Price/Cash flow Ratio
7) Market Test Ratios: Price to book value Ratio
8) Market Test Ratios: Price/Sales Ratio
9) Market Test Ratios: Price/Earnings To Growth Ratio