The price-to-sales (P/S) ratio is a profitability analysis tool used to compare companies and discover undervalued securities. P/S ratios can vary significantly between industries and companies so it's important to view a company's P/S ratio in comparison to similar companies within the same industry.

An investment is generally more attractive 👍when it has a lower P/S ratio calculation.

Understanding the Price-to-Sales Ratio

The P/S ratio is an investment valuation ratio that shows a company's 澳洲幸运5官方开奖结果体彩网:market capitalization divided by its sales fo♕r the previous 12 months. It's a measure of the value investors are receiving from a company's stock by indicating how much equity is required to deliver $1 of revenue.

The metric is also re𓆉ferred to as the revenue multiples or sales mu🐷ltiples.

Analysts prefer to see a lower number. A ratio ꦅof less than 1 indicates that investors are investing less than $1 for every $1 the company earns in revenue.

When to Use the Price-to-Sales Ratio

The ratio should only be used when comparing similar compa💮nieꦐs within similar industries against each other. The P/S ratio of one industry may vary greatly from the ratio of another because different entities and different sectors have varying capital requirements.

The P/S ratio is also useful when analyzing companies with similar financing structures, especially considering companies that don't carry debt. Two companies earning the same total revenue can have different P/S ratios if one is highly leveraged while the other relies heavier on share offerings because the P/S ratio doesn't consider debt financing.

The P/S ratio can be a particularly good metric for evaluating companies in 澳洲幸运5官方开奖结果体彩网:cyclical industries that may not show an actual net profit every year. The P/S ratio considers a company's past 12 months of revenue so it absolves any cyclicality or seasonality. It's not as useful when analyzing young emerging coᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚmpanies, however, because the metric doesn't consider future growth potential.

The P/S ratio is also useful when analyzing companies with negative earnings or negative cash flow. It only looks at a company's revenue and not its operating expenses or profit margin. Companies may not be profitable but the P/S ratio analyzed over time can detect revenue growth and emerging efficiencies in operations before the company ends up turning a profit.

Price-to-Sales Formula(s)

The metric can be calculated based on aggregate totals or a per-share basis:

Price-to-Sales Ratio = Total Company Market Capitalization / Total Company Sales

Price-to-Sales Ratio = Market Value per Share / Sales per Share

The Bottom Line

Less usually means more ꦗwith P/S ratios. A lower ratio is o🐲ften a sign of a good investment but all metrics come with caveats and cautions. The P/S ratio is most reliable when it compares similar companies in the same industry because they typically have similar capital requirements and face the same sorts of challenges. Be sure you have a handle on all its implications before you rely on it for your investment decisions.

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