P/S Ratio

Price-to-Sales ratio: market cap divided by trailing twelve-month revenue. P/S is the metric of last resort for unprofitable companies where P/E is undefined or meaningless -- early-stage software, biotech before drug approval, growth-stage e-commerce. Common misuse: comparing P/S across industries with structurally different margin profiles. A 5x P/S is cheap for a 90%-gross-margin software firm and expensive for a 3%-net-margin grocer. Always pair P/S with gross-margin context before concluding the multiple is high or low.

Related terms

Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta

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