Moneyzine
Contents
/Investment Guides /Price to Sales Ratio

Price to Sales Ratio

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The financial metric known as the price to sales ratio, or PSR, tells the analyst or investor the cost to acquire $1.00 of the company's revenues. The price to sales ratio only requires two inputs: the current market price of common stock and the company's annual revenues.

Calculation

Price to Sales = Market Value per Share / Annual Revenues per Share

Where:

  • Annual Revenues per Share = Revenues / Shares of Common Stock Outstanding

Explanation

The price to sales ratio is a high-level measure of the investment quality of a company. The use of this measure is relatively new, and became an important valuation indicator when startup companies were not generating profits but had significant revenues during the Internet Dot Com boom. Revenues per share were calculated since these companies had not yet generated profits, making the calculation of earnings per share impossible.

The use of revenues can be misleading, since they are not a guarantee of the longer term profitability of a company. As is the case with price to earnings ratios, a relatively high PSR is often seen when companies are expected to grow in the near term, while companies with lower growth prospects will usually have a lower PSR.

When drawing conclusions about the relative performance of a company, benchmark comparisons should be made with competitors in the same industry.

Example

Company A's current market price per share of common stock is $88.24. Company A's income statement indicates total revenues of $29,611,000 and the company has 693,000 shares of common stock outstanding. The price to sales ratio of Company A would be:

= $88.24 / ($29,611,000 / 693,000) = $88.24 / $42.73, or 2.07

Related Terms

income statement, revenues, price to book ratio, price to earnings

Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Biden Or Trump: Who Is Better For The Economy And Stocks?
Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
March 19th, 2024
When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
March 14th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.