Price-to-Sales Ratio
Market capitalisation divided by annual revenue, showing how much is paid per rupee of sales.
Formula
P/S = Market Capitalisation / Annual Revenue
Unit
ratio (x, times)
In depth
Price-to-sales works where earnings do not exist or are temporarily distorted — early-stage companies, cyclical troughs, or businesses deliberately suppressing profit to grow. Its blindness is the point of caution: revenue says nothing about whether that revenue is profitable, so a business with 3% margins and one with 30% margins can show the same ratio while being worth very different amounts. It also ignores the balance sheet entirely, so a heavily indebted company looks identical to a debt-free one, which is why EV-to-sales is the more rigorous version. Use it as a cross-check on a P/E, never on its own.
Worked example
Market capitalisation of ₹1,800 crore on revenue of ₹1,000 crore gives a P/S of 1.8. A competitor at the same 1.8 with a 4% net margin instead of 9% is being valued at twice the price per rupee of actual profit.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Price-to-Sales Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.