The price-to-sales ratio, or P/S ratio, is a company's market capitalisation divided by its revenue over the last twelve months. Market capitalisation is the share price times the number of shares, so it is what the stock market asks for the whole company. Revenue (also called sales) is the money the company takes in from customers before any cost is taken out. The result tells you how many dollars investors are asked to pay for each dollar of yearly sales. You can get the same number per share, by dividing the share price by sales per share. A close relative is EV/sales, which swaps market capitalisation for enterprise value, so that the company's debt and cash are counted too.
Worked example
Company A has a market capitalisation of $500 million and sold $250 million of goods over the last twelve months. P/S = $500 million ÷ $250 million = 2.0, so investors are asked to pay $2 for every $1 of yearly sales. Now add the balance sheet: Company A owes $100 million in debt and holds $50 million in cash, so its enterprise value is $500 million + $100 million - $50 million = $550 million, and EV/sales = $550 million ÷ $250 million = 2.2. Next, compare two firms that both sell $250 million a year and have the same P/S of 2.0. If Company A keeps 20 cents of profit from each dollar of sales, it earns $50 million a year. If Company B keeps only 4 cents, it earns $10 million. The same P/S hides a five-fold gap in profit.
Why it matters
The price-to-sales ratio is useful when the price-to-earnings ratio cannot be used, for example for a young company that still makes a loss: it has no positive earnings, but it does have sales. Revenue is also less affected by accounting choices than profit is, and it moves less from year to year. The weakness is that sales say nothing about what is left after costs. A business with thin margins, such as a grocery chain, normally trades at a low P/S, while a software firm with high margins normally trades at a much higher one, so the ratio only compares fairly between companies in the same industry. Debt matters too, which is why EV/sales is often preferred when companies differ in how much they borrow. A low or high reading is a question to look into, not a verdict: check the profit margin, the debt and the growth of sales next to it. The sales figure is on the income statement in the annual report.
Frequently asked questions
There is no single good level, because it depends on the industry and on the company's profit margin. Low-margin businesses such as grocery chains usually have a low P/S, and high-margin software firms a much higher one. Compare it only with similar companies and with the same company's earlier years, and treat the result as a question to look into.
Divide the market capitalisation by the revenue of the last twelve months. For example, a market cap of $500 million and revenue of $250 million give a P/S of 2.0. You can also divide the share price by sales per share, which gives the same number.
P/S uses market capitalisation, which counts only the shareholders' part of the company. EV/sales uses enterprise value, which is market capitalisation plus debt minus cash, so it also reflects what the company owes and holds. It is the fairer comparison when two companies borrow very different amounts.
Related terms
Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.