A stock's market capitalization-to-sales ratio, also known as the price-to-sales ratio (P/S ratio), is a financial metric that is used to evaluate the valuation of a company. It is calculated by dividing the market capitalization of a company by its total annual revenue or sales.
The formula for market capitalization-to-sales ratio is as follows:
Market Capitalization-to-Sales Ratio = Market Capitalization / Total Annual Revenue or Sales
The market capitalization of a company is the total value of all its outstanding shares of stock in the market. It is calculated by multiplying the current share price of the company by the total number of outstanding shares.
The market capitalization-to-sales ratio is used by investors and analysts to assess how much investors are willing to pay for each dollar of a company's sales. It is often considered a valuation metric that indicates the relative attractiveness of a stock's price compared to its revenue or sales. A lower ratio may imply that a company is undervalued, while a higher ratio may suggest overvaluation.
It is important to note that the market capitalization-to-sales ratio should be used in conjunction with other financial ratios and analysis to get a comprehensive understanding of a company's valuation and financial health.