Price-to-Sales Ratio (P/S) Explained

The price-to-sales ratio compares a company’s market capitalization with its revenue. It is often used when earnings are volatile, low, or negative.

P/S ratio formula

P/S Ratio = Market capitalization ÷ Revenue

It can also be calculated per share as stock price divided by revenue per share.

When P/S is useful

• Growth companies with limited current profitability.
• Cyclical companies where earnings temporarily decline.
• Comparing companies within the same industry that have similar business models.

What a P/S ratio does not show

P/S does not account for margins, profitability, debt, or free cash flow. A company with high revenue but weak margins may deserve a lower valuation than a profitable peer.