Plain-English definitions, reviewed by an independent investor
P/S Ratio (Price-to-Sales)
The P/S ratio compares a company’s value to its revenue, useful when earnings are thin or negative.
The P/S ratio compares a company’s value to its revenue, useful when earnings are thin or negative.
P/S = Market Cap ÷ Annual Revenue
Why it matters
It values sales directly, sidestepping distorted or absent profits.
Common confusion
Sales are not profit; a low P/S can hide thin or negative margins.
Frequently Asked Questions
When use P/S?
For fast-growing or pre-profit firms where P/E is meaningless.
P/S vs P/E?
P/E uses profit; P/S uses revenue and works when profit is unclear.