Home
Back
PS Ratio Formula:
| From: | To: |
The Price-to-Sales (PS) Ratio is a valuation metric that compares a company's stock price to its revenue per share. It measures how much investors are willing to pay for each dollar of a company's sales.
The calculator uses the PS Ratio formula:
Where:
Explanation: The PS Ratio indicates how much the market values every dollar of a company's sales. A lower ratio may suggest the stock is undervalued, while a higher ratio may indicate overvaluation.
Details: PS Ratio is particularly useful for evaluating companies that are not yet profitable or have inconsistent earnings. It provides a revenue-based valuation metric that complements other ratios like P/E ratio.
Tips: Enter the current market price per share and sales per share in dollars. Both values must be positive numbers. The calculator will compute the PS Ratio as a unitless value.
Q1: What is a good PS Ratio?
A: There's no universal "good" PS Ratio as it varies by industry. Generally, ratios below 1-2 may indicate undervaluation, while ratios above 5-10 may suggest overvaluation, but industry comparisons are essential.
Q2: How does PS Ratio differ from P/E Ratio?
A: PS Ratio uses sales/revenue, while P/E Ratio uses earnings. PS Ratio is useful for companies with no earnings or negative earnings, while P/E is better for profitable companies.
Q3: What are the limitations of PS Ratio?
A: PS Ratio doesn't account for profitability, debt levels, or profit margins. A company with high sales but low margins may have a misleading PS Ratio.
Q4: Should PS Ratio be used alone for investment decisions?
A: No, PS Ratio should be used alongside other financial metrics and ratios to get a comprehensive view of a company's valuation and financial health.
Q5: How do I find sales per share data?
A: Sales per share is calculated by dividing the company's total revenue (from income statement) by the number of outstanding shares. This information is available in company financial reports.