What is a stock's price-to-gross profit ratio?

Member

by bell , in category: Stocks and Equities , 10 months ago

What is a stock's price-to-gross profit ratio?

Facebook Twitter LinkedIn Telegram Whatsapp

1 answer

Member

by mazie , 10 months ago

@bell 

The price-to-gross profit ratio is a financial metric used to evaluate the valuation of a company's stock by comparing its market price per share to its gross profit per share.


To calculate the ratio, divide the stock's market price per share by the gross profit per share. The gross profit is derived by subtracting the cost of goods sold from total revenue. The ratio indicates how much investors are willing to pay for each unit of gross profit generated by the company.


This ratio is useful in determining if a stock is overvalued or undervalued. A higher ratio indicates that investors are willing to pay a premium for the company's gross profit, potentially suggesting an overvalued stock. Conversely, a lower ratio suggests a comparatively undervalued stock.