Price to Sales Ratio

Price to Sales Ratio Calculator

Calculation Method

Per Share Market Cap

Time Period

Results

P/S Ratio

Valuation

Industry Average

Interpretation

P/S Ratio Guidelines

Undervalued

P/S < 1.0

May indicate undervaluation or business challenges

Reasonable

P/S 1.0 - 2.0

Generally considered reasonable valuation

High

P/S 2.0 - 5.0

Higher valuation, scrutinize growth prospects

Very High

P/S > 5.0

May indicate overvaluation or exceptional growth

Formula & Education

Calculation Formula

Per Share Method:

P/S Ratio = Share Price ÷ Sales Per Share

Market Cap Method:

P/S Ratio = Market Cap ÷ Total Revenue

Key Considerations

• Compare with industry peers
• Consider growth rates and margins
• Account for business model differences
• Look at revenue quality and sustainability

When to Use P/S Ratio

Companies with no or negative earnings

Cyclical businesses during downturns

Fast-growing companies reinvesting profits

Initial screening of investment candidates

Limitations

• Ignores profitability differences
• Doesn't account for debt levels
• Can vary significantly by industry
• Revenue recognition policies may differ