Price to sales ratio
Also known as: P/S, PS ratio
A ratio compares the price the market puts on a stock to something the company actually produces, its , its , or its cash flow. It tells you how expensive a stock is relative to that measure, not just whether the share price is high or low in absolute terms.
The price to sales ratio divides by . Unlike , it can be calculated even when a company has no profit at all, which makes it useful for young or fast-growing companies that are not yet earning money.
The formula is: / .
P/S is a much blunter measure than , since it says nothing about how much of that turns into actual profit. A company with a low P/S but very thin margins can still be a poor investment, while a company with a higher P/S but strong and growing margins may be reasonably priced.