Question

A price-to-sales ratio of 10 indicates that investors are willing to pay ______.

answer choices

$1 for every $10 of total sales

$10 for every $1 of total sales

Answer 1

A price-to-sales ratio is a ratio that measures the company's stock price to its total revenues. It is also known as sales multiple or revenue multiple ratio. It is a valuation ratio which measures how much price an investor is willing to pay for the company's stock in comparison to its total revenues.

It is calculated as :

Price-to-sales ratio = Market Value per share / Sales per share
or
= Market Capitalisation (i.e. no. of shares * market price) / Total Sales

Ans : A price-to-sales ratio of 10 indicates that investors are willing to pay $10 for every $1 of Total sales.