investing guide

How Do You Calculate The Price-To-Sales Ratio

So how do you calculate the price-to-sales ratio?

When you look at the price-to-sales ratio or P/S ratio you are comparing the price of the company to the sales revenue.

To calculate the P/S ratio you divide a company's market capitalization by the total sales revenue from the previous year. A P/S ratio over 5 is considered high, and many investors look for stocks that have a P/S ratio lower than 1.

In other words, if a company has a P/S ratio of 10 it basically means investors are paying $10.00 for every $1.00 a company makes in sales. So naturally the lower the P/S ratio the better.

As with everything else related to investing; do not rely on any one source when making a choice to buy a stock.