The price to sales (P/S or PSR) ratio shows the current priceWhat are value stocks? A value company is a company that app... More relative to the total sales per share of a company.
Typically the P/S takes into the account the previous 12 months and it can be calculated using the following formula:
A company with a small ratio (i.e. less than 1.0) is considered a better investment as the pays less for each unit of sales. Note that sales do not reveal a complete picture — a low P/S could indicate an unprofitable company. Indeed, the P/S ratio is generally only used for unprofitable companies, as they won’t have a priceWhat is price? The price is the measure of the value of good... More/earnings ratio (P/E ratio).
The P/S ratio is important because it can be used to measure the value of young companies that do not have any earnings yet. However, when considering buying sharesWhat are value stocks? A value company is a company that app... More of newly established companies, it is advisable to take into account much more information than just the price to sale ratio; it does not take into account debtDebt is a type of liability. It is an obligation by one pa... More or expenses.
The price-to-sales ratio is usually used to compare PSR’s within the same industry, to the market itself or against a company’s historical data where it exists (which it may not for a very new company).
