Question

Please I want explain for this topic in details

Q)Explain this : Price-to-sales ratio

Answer 1

The price-to-sales (P/S) ratio compares a company’s stock price to its revenues. It is an indicator of the value proportionate to each value of sales or revenues.

Price-to-sales ratio =

This ratio divides total value of the firm by the revenue generated. It is the value to sales ratio. A low ratio indicates that the stocks are undervalued and high ratio indicates overvaluation of stocks. But it does not give an idea whether the company makes earnings or not. Comparison using price-to-sales ratio across the firms with different leverage will be a misleading one because it will yield lower values for more highly levered firms.