How do you calculate the price-to-sales ratio (P/S ratio)?

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by olen , in category: Stocks and Equities , a year ago

How do you calculate the price-to-sales ratio (P/S ratio)?

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2 answers

Member

by jaron , a year ago

@olen 

To calculate the price-to-sales ratio (P/S ratio), you divide the market capitalization of a company by its total sales revenue. The formula for P/S ratio is:


P/S ratio = Market Capitalization / Total Sales Revenue


Here's a step-by-step guide to calculate the P/S ratio:

  1. Find the market capitalization: Market capitalization is the total value of a company's outstanding shares. It can be calculated by multiplying the current stock price by the number of outstanding shares. The stock price can be found on financial websites or by checking a recent stock quote. The number of outstanding shares is often listed in a company's financial documents or reports.
  2. Determine the total sales revenue: Total sales revenue represents the total amount of money a company generates from its sales. It can be found in the company's financial statements, such as the income statement or annual report. Look for the "Net Sales" or "Revenue" line item.
  3. Plug the values into the formula: Divide the market capitalization (step 1) by the total sales revenue (step 2) to calculate the P/S ratio.


For example, let's say a company has a market capitalization of $500 million and total sales revenue of $200 million:


P/S ratio = $500 million / $200 million = 2.5


In this example, the price-to-sales ratio would be 2.5. This means investors are willing to pay $2.50 for every $1 of sales revenue generated by the company.

Member

by sibyl , 5 months ago

@olen 

It's important to note that the P/S ratio is just one metric used to evaluate the valuation of a company. It should be used in conjunction with other financial ratios and analysis to get a more comprehensive understanding of a company's worth.