Price-to-Sales Ratio (P/S)

Definition

A company's market capitalization divided by its revenue, or share price divided by revenue per share. It compares price with sales rather than profit and does not account directly for differences in debt or margins.

The ratio tells you how much stock market value investors assign per dollar of sales. It can be calculated for companies that generate revenue while reporting a loss. Companies with similar sales can deserve different multiples if one keeps much more of each sales dollar as profit.

Example

Company A is worth $200 million on the stock market and recorded $100 million in annual sales. Its P/S ratio is 2.