Investing for Beginners , investing

investingforbeginners.eu The financial markets generally are unpredictable. So that one has to have different scenarios.. The idea that you can actually predict what's going to happen contradicts my way of looking at the market.
George Soros

    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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