This ratio divides a company's stock price by its annual revenue per share. Unlike earnings-based ratios, it measures what investors pay for each dollar of sales the company generates, regardless of profitability. It can be useful for evaluating companies that are not yet profitable or for comparing firms in the same industry.
A company generates $100 million in annual revenue with 10 million shares outstanding, meaning $10 in revenue per share. If its stock price is $50, the price-to-sales ratio is 5.0. This tells you that investors are paying $5 for every $1 of annual sales, which you can compare to competitors in the same industry.
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