Investing for Beginners .EU, investing If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.
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Investment Dictionary

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P/S Ratio

Price to Sales Ratio


P/S ratio shows the price of the stock compared to its sales. This ratio historically was quiet popular, but now EV/S ratio, which is more correct methodically, is used. 


Formula (Calculation): 

P/S = share price / sales per share


Simplified calculation (may be applied if there is only one class of shares): 

P/S = market capitalization / sales of the company 


It is more simple to calculate P/S than EV/S, but P/S is incorrect methodically because sales (S) is an index of the firm, but share price (P) is an equity ratio. The difference might be significant if company has a lot of debts.


If you want to find cheap stocks that would be good investments, you have to calculate more valuation multiples. You can’t rely on one ratio (P/S) when making investment decision. 



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