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Price to Sales

Per dollar of shareholder value, how much business does this company generate? Price to sales (P/S) is a straightforward way to answer this question.

Here's the formula to finding P/S:

Price to sales (P/S) = stock price (total market cap) / total sales (revenues)

Additional Comments:

P/S is a common-sense ratio. The lower the better, although there's no specific rule or normalizing factor like growth. Somewhere around 1.0 is usually considered good. 2.0 isn't out of hand, but the business had better grow consistently into its valuation. P/S can be a way to filter out unworthy candidates.

Don't read too much into the raw "P/S" number, especially when comparing companies in different industries. A company selling big-ticket items may have a very low P/S ratio. Remember - compare apples to apples, and understand the business beyond just the top or bottom line.

Related Terms:

Price-Earnings Ratio
(P/E) Ratio: A tool for comparing the prices of different common stocks by assessing how much ...

Growth Stocks
Growth stocks are issued by companies expected to have sustained high rates of growth in sales ...

Return on Equity
Return on equity is the return generated by the company for each dollar of shareholder investment. ...

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