Price-to-Sales Ratio (P/S Ratio): Meaning, Calculation, & Importance

What is the Price-to-Sales Ratio?

The price-to-sales ratio is a financial metric used to value a company using its stock price and revenue per share. The ratio takes the company’s market cap (market capitalization) and divides it by annual sales.

Price-to-Sales Ratio Calculator

This price-to-sales calculator will give you the P/S ratio using either:

• Market capitalization and sales
• Shares outstanding, stock price, and sales

Market Cap:Sales:Shares Outstanding:Stock Price:Calculate PS RatioClear

[tcb-script]function calculatePSRatio() {var marketCap = document.getElementById(“market_cap”).value;var sales = document.getElementById(“sales”).value;var sharesOutstanding = document.getElementById(“shares_outstanding”).value;var stockPrice = document.getElementById(“stock_price”).value;var error = “”;if (marketCap && sales) {if (!isNumeric(marketCap) || !isNumeric(sales) ) {error = “Please enter a valid number for market cap and sales.”;}} else if (sharesOutstanding && stockPrice && sales) {if (!isNumeric(sharesOutstanding) || !isNumeric(stockPrice) || !isNumeric(sales)) {error = “Please enter a valid number for shares outstanding, stock price, and sales.”;}} else {error = “Please provide either market cap and sales or shares outstanding, stock price, and sales.”;}if (error) {document.getElementById(“result”).innerHTML = error;return;}var psRatio;if (marketCap && sales) {psRatio = marketCap / sales;} else if (sharesOutstanding && stockPrice && sales) {psRatio = (sharesOutstanding * stockPrice) / sales;}document.getElementById(“result”).innerHTML = “PS Ratio: ” + psRatio.toFixed(2);}function clearFields() {document.getElementById(“market_cap”).value = “”;document.getElementById(“sales”).value = “”;document.getElementById(“shares_outstanding”).value = “”;document.getElementById(“stock_price”).value = “”;document.getElementById(“result”).innerHTML = “”;}function isNumeric(value) {return !isNaN(parseFloat(value)) && isFinite(value);}[/tcb-script]

Price-to-Sales Ratio Calculation

P/S Ratio = (Company Market Cap) / (Annual Company Sales)

To find the annual sales for the P/S ratio calculation, check the company’s latest quarterly report. That report will show you the last 12 months or TTM (trailing twelve months) revenue.

To find the market cap, you can multiply the current stock price by the number of shares outstanding.

Both of these numbers can be found on any site that provides current stock quotes.

Why is the Price-to-Sales Ratio Important?

The price-to-sales ratio is important because it helps investors make decisions about a company they might invest in.

It helps investors:

• compare one company to another.
• compare one company’s current P/S ratio to past P/S ratio.
• compare a company’s P/S ratio to the average P/S ratio of the industry in which it operates.
• determine what price they might be willing to pay for a stock.

Unlike with P/E ratios, the P/S ratio doesn’t require a company to be profitable. So, investors can use P/S ratios to compare a wide variety of companies in various stages of growth or decline.

Related Articles

Earnings Growth Rate: Meaning, Formula, & Importance

PEG Ratio: Calculator, Meaning, Formula & How it Can Help You

Price to Earnings Ratio (PE Ratio): Formula, Calculator, & Importance

Price-to-Sales Ratio (P/S Ratio): Meaning, Calculation, & Importance