Valuation · updated October 21, 2026
What is P/S (price-to-sales ratio) and how is it calculated
P/S shows how much the market pays for each dollar of sales the company makes in a year. It is most useful for companies that are not profitable yet: almost every company has sales, not all have profit.
P/S formula
- Market capitalization
- The share price times the number of shares.
- Sales
- Total revenue over the last four reported quarters.
Worked example
A company is worth $50 billion on the stock market and sold $25 billion in a year.
Investors pay $2 for each $1 of sales. If the company keeps $10 of profit from every $100 it sells, its P/E would be around 20.
How to read P/S
P/S says nothing about profit. A supermarket with a 2% margin deserves a low P/S, while a software company with a 30% margin can be worth a P/S of 8. Only compare within the same sector.
When P/S can fool you
Very thin margins: P/S looks cheap, but almost nothing is left from sales. Heavy debt: P/S ignores debt; for indebted companies EV/EBITDA tells you more.
Related terms
Questions about P/S
When is P/S more useful than P/E?
When the company is losing money or its profit jumps around. Then P/E does not work, and sales are a steadier starting point.
What P/S is too high?
It depends on the profit margin. As a rough rule, a P/S above 10 needs the company to grow very fast for years.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary