How to Calculate Price-to-Sales Ratio in the Stock Market
Retirement, dream vacations, and the children's college fund are just some of the reasons people invest in the stock market. If an investor is not armed with sufficient financial knowledge these goals are but a pipe dream. Price to sales ratio is a good indicator of how the stock market values a company. Read on to learn more.
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Instructions
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Method one
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1
Obtain the company's current stock price. This figure is readily available on any financial information web site.
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2
Calculate the corporation's total sales per share for the last year. Identify the total number of shares outstanding for the company. Next, determine the total sales for the past year of the corporation. Finally, divide the total sales figure by the total number of shares outstanding. This number is the total sales per share.
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3
Divide the current stock price of the company by the total sales per share figure. A low price to share ratio (below 1) is widely considered a good investment. However, as with any financial data, opinions can vary on their usefulness. Even so, the more information the investor has at their disposal the better.
Method two
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4
Ascertain the company's market capitalization. Market capitalization is the total number of shares outstanding multiplied by the current share price. Most financial web sites will list the company's market cap but sometimes it may not be available.
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5
Determine the corporation's total sales for the past year. This information is available at most every company's web site or through a financial information site.
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6
Compute the Price-to-sales ratio. Divide the market capitalization of a company by the totals for the past year. A low price to share ratio (below 1) is widely considered a good investment.
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