Aug 052019
 

The market value of a company (its market capitalisation) is simply the number of shares the company has in issue multiplied by the market price of a single share. That market cap divided by the company’s annual sales (or revenue) gives us the price to sales ratio (PSR). The ratio can also be found by dividing the price of one share by the company’s revenues per share. The PSR tells us how many years it will take the company to sell goods to the value of its market cap. If, for example, the PSR is three, we know that, assuming sales stay level, it will take three years. Sales figures are much harder to manipulate than earnings, so if a p/e looks suspect, the PSR offers something of a reality check. Generally speaking, a PSR below one means a firm is cheap, as its market cap is less than its sales.

More on banking and finance terms tomorrow, so please come back for more on what the meaning is of words like Price to sales ratio.

Example of Price to sales ratio in use?

Can you provide an example of ‘Price to sales ratio’? If so you could win 100 GBP of Amazon vouchers. Please comment below and one person will be selected at random on [date]. Thank-you

 Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

(required)

(required)