For the Two Methods in this Calculator:
Method 1: Market Capitalization / Total Sales
To calculate the P/S ratio using the Total Market Cap / Total Sales method, we need the formula below:
P/S Ratio = Market Capitalization / Total Sales
Where:
- Market Capitalization: It represents the total value of a company’s outstanding shares. To find it, multiply the current stock price by the total number of outstanding shares. This information is often available on financial news websites, stock market apps, and financial reports from the company.
- Total Sales: The total revenue a company generates from its business activities without deducting any expenses. It’s often found in the income statement of the company’s financial reports, which are available on its website, financial news portals, and regulatory filings (like the SEC’s EDGAR database in the United States).
This method provides a comprehensive view of how the market values the company’s sales. A higher P/S ratio might indicate that the market expects future growth in sales. Conversely, a lower P/S ratio could suggest the company is undervalued relative to its sales.
Method 2: Stock Price / Sales Per Share
This P/S (Price-to-Sales) Ratio formula:
P/S Ratio = Stock Price / Sales Per Share
offers a per-share perspective on valuing a company’s sales. Here’s a breakdown:
- Stock Price: The current trading price of a company’s stock. It can be easily found on stock exchanges, financial news websites, and stock market apps. The stock price fluctuates based on market conditions and investor sentiment.
- Sales Per Share: This figure is the company’s total sales revenue divided by the number of outstanding shares. To find sales revenue, look at the company’s income statement. The number of outstanding shares is usually in the company’s financial statements or quarterly reports. Sales per share can be calculated as: Sales Per Share = Total Sales / Number of Outstanding Shares.
By dividing the stock price by the sales per share, the P/S ratio indicates how much investors pay for each dollar of sales.
P/S Ratio Calculation Example
Let’s say we want to calculate the P/S ratio of a company called XYZ Tech. Assume XYZ Tech’s stock is trading at $50 per share and has 10 million shares outstanding. The income statement shows that the total sales for the last fiscal year were $200 million.
Using Method 1: Market Capitalization / Total Sales
- Market Capitalization = $50 * 10,000,000 = $500 million
- Total Sales = $200 million
- P/S Ratio = Market Capitalization / Total Sales = $500 million / $200 million = 2.5
Using Method 2: Stock Price / Sales Per Share
- Stock Price = $50 per share
- Sales Per Share = $200 million / 10 million shares = $20 per share
- P/S Ratio = Stock Price / Sales Per Share = $50 per share / $20 per share = 2.5
The P/S ratio calculator is particularly useful for comparing companies in the same industry or companies that don’t have profits yet. It helps investors gauge how the market values a company’s sales, independent of earnings and other financial complexities.
