Calculate the price-to-sales ratio from market capitalisation and total revenue as a revenue-based valuation multiple for comparing companies.
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Equity Valuation
The price-to-sales ratio (P/S) compares a company's market capitalisation to its total revenue, providing a valuation multiple useful for companies with negative earnings or cyclical profit patterns.
P/S tells investors how much the market pays for each unit of revenue. It is especially useful for valuing early-stage or loss-making companies where P/E ratios are meaningless because earnings are negative.
Revenue is harder to manipulate than earnings, making P/S a more stable valuation metric. However, it ignores profitability entirely — a company can have a low P/S and still be a poor investment if margins are thin or declining.
Divide market cap by trailing twelve-month (TTM) revenue.
P/S = Market Capitalisation / Total Revenue
Alternatively: P/S = Stock Price / Revenue Per Share. Use TTM revenue for consistency.
A company has a market cap of 5,000,000 and annual revenue of 2,000,000. P/S = 5,000,000 / 2,000,000 = 2.5×. Investors pay 2.50 for every 1 of revenue.
Ignores profitability, capital structure, and cash flow. Not comparable across industries with different margin structures. Revenue recognition policies can distort comparisons.
Frequently asked questions
Industry-dependent. Mature consumer staples may trade at 1–2×. High-growth SaaS companies regularly trade at 10–20× or higher. Always compare within the same sector.
Use P/S when the company has negative earnings, volatile profits, or is in an early growth stage. P/S provides a valuation anchor when P/E is not meaningful.
No. P/S uses market cap (equity value only). For a debt-adjusted version, use EV/Sales (Enterprise Value / Sales), which includes debt and excludes cash.
No — market cap and revenue are both positive in normal circumstances. If market cap is somehow negative (theoretical edge case), the ratio would be meaningless.
Related
These related calculators come from the same leaf category, nearby sibling categories, or the same top-level topic.
Calculate trailing or forward price-to-earnings ratio from share price and positive EPS, with the matching earnings yield.
Calculate the price-to-cash-flow ratio from stock price and operating cash flow per share to evaluate valuation on a cash-generation basis.
Calculate EV/Sales, compare the current multiple with a peer band, and estimate implied enterprise values at low, midpoint, and high revenue multiples.
Calculate basic and simplified diluted EPS from net income, preferred dividends, weighted average common shares, and optional additional diluted shares.
