# Price to Sales Ratio

Price to sales ratio (P/S ratio) is the ratio of a company’s current stock price to its net sales revenue per share. Price to sales ratio is a relative valuation measure which values a company with reference to the sales revenue it generates. There are situations in which P/S ratio is more meaningful than the more popular ratios such as the price to earnings (P/E) ratio, etc., for example when there is net loss or where the net income is manipulated through creative accounting.

Revenue is the most top-level parameter of a company’s financial performance. It is less prone to accounting manipulations as compared to net income even though complete understanding of a company’s revenue recognition policies is needed to correctly adjust revenues earned in each period.

## Formula

Price to sales ratio is calculated by dividing the current stock price by the net revenue per share. Following is the formula:

$$Price\ to\ sales\ ratio\ (P/S\ ratio)=\frac{P_0}{S}$$

Where P0 is the current stock price and S is the net revenue per share calculated by dividing the net revenue, i.e. gross revenue minus VAT or any other taxes and sales returns and trade discounts, divided by weighted average number of shares during the period.

P/S ratio can also be calculated form P/E ratio using the following formula:

$$P/S\ Ratio=P/E\ Ratio\times Net\ Profit\ Margin$$