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The Price to Sales Ratio is a high level measure of the investment quality of a company. The prices to sales ratio of a company is usually calculated on a per share basis.
The calculation of price per share for a company is:
Stock Price per Share / Revenues per Share
The concept of revenues per share is a relatively new one and became important during the Internet Dot Com boom. The use of revenues can be misleading since they are not a good indication of the profitability of the company. The revenues per share ratio were often calculated for companies that had not yet created profits - making the calculation of earnings per share impossible.
A price to sales ratio below 1.0 is considered desirable; however, serious consideration should be given to the limitations of this measure. |
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