What is Price-to-sales ratio? How useful is this market ratio?

• Measures the relationship between the value of stock and the level of company.   PS:note that sales volume is an operating activity of a company

Simple illustration:

Interpretation:

• Generally,a low Price-to-sales ratio indicates that a company has better value. In another word,if a company’s price-to-sales ratio is high,the investor is paying more for the company’s sale than if the business market ratio is low.

Salient points to note:

• This business ratio is ideal for computing the value of a company with no earnings history.In the past,this ratio being frequently used for internet based companies which has no or low earnings records as earning per share,etc cannot be used effectively.
• The underlying assumption of this price-to-sales ratio is that profits will be made once market share is established.
• A few considered this as a good business ratio as sales statistics are difficult to manipulate. Unfortunately,nowadays,we also see many public listed companies manipulating their sales figures as the sales figure also form one part of the key performance metric/KPA/KPI.