1. What is Price to Sales Ratio?

The Price to Sales (P/S) ratio is a valuation metric that compares a company's market capitalization to its annual sales. It helps investors assess how much they're paying for a company's sales, which can be especially useful for evaluating companies that are not yet profitable.

2. How Does the Calculator Work?

The calculator uses the P/S ratio formula:

Where:

• \( Market Cap \) — Total market value of the company's outstanding shares (USD)
• \( Annual Sales \) — Company's total revenue over the past 12 months (USD)

Explanation: The ratio shows how much investors are willing to pay per dollar of sales. A lower ratio may indicate better value.

3. Importance of P/S Ratio

Details: The P/S ratio is particularly valuable for comparing companies within the same industry, evaluating startups without earnings, and identifying potential undervalued stocks.

4. Using the Calculator

Tips: Enter market capitalization and annual sales in USD. Both values must be positive numbers. The result is a unitless ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/S ratio?
A: It varies by industry, but generally, ratios below 1-2 may indicate undervaluation, while higher ratios suggest overvaluation.

Q2: How does P/S differ from P/E ratio?
A: P/S uses sales instead of earnings, making it useful for companies with no profits or inconsistent earnings.

Q3: What are the limitations of P/S ratio?
A: It doesn't account for profitability, debt levels, or differences in profit margins between companies.

Q4: Should P/S be used alone for investment decisions?
A: No, it should be used alongside other metrics like P/E, debt-to-equity, and growth rates for a complete picture.

Q5: How does P/S ratio vary by industry?
A: High-margin industries typically have higher P/S ratios than low-margin industries.