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

Last updated June 12, 2023

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

Price-to-Sales Ratio Calculation

price-to-sales ratio formula

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.

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Daniel Larsen

Daniel created to help new and experienced traders level up. He began trading in 2002, and has spent over a decade trading professionally, for prop firms and clients. When he's not at a computer, you can find him on the ocean, in a canyon, or in the mountains.