Price to Sales Ratio Calculator

What Is the Price to Sales Ratio?

The Price to Sales ratio (P/S ratio) compares a company’s market value to its total revenue.

It answers a simple question:

How much are investors willing to pay for each dollar of sales?

Price to Sales Ratio Formula

There are two common ways to calculate it:

Method 1 (Using Market Cap):

P/S Ratio = Market Capitalization ÷ Total Revenue

Method 2 (Per Share Basis):

P/S Ratio = Stock Price ÷ Revenue Per Share

Both methods give the same result.

Why Investors Use the P/S Ratio

The P/S ratio is especially helpful when:

• A company is not yet profitable
• Earnings are volatile
• You want a quick valuation comparison

For example, many early-stage tech companies may not have positive earnings. In that case, the Price to Earnings (P/E) ratio is not useful. But they still generate revenue. That is where the P/S ratio becomes valuable.

It focuses on sales instead of profits.

How the Price to Sales Ratio Calculator Works

Your calculator takes four inputs:

1. Current Stock Price per Share

The market price of one share of the company.

2. Shares Outstanding

Total number of shares issued by the company.

3. Total Revenue (TTM or Annual)

Revenue over the last twelve months (TTM) or the most recent annual revenue.

4. Gross Profit Margin % (Optional)

Used for deeper analysis. This helps adjust valuation based on profitability efficiency.

What the Calculator Automatically Computes

Once you click Calculate, the tool provides:

1. Price to Sales Ratio (P/S)

P/S = Stock Price ÷ Revenue Per Share

This is the main valuation metric.

2. Market Capitalization

Market Cap = Stock Price × Shares Outstanding

This tells you the company’s total market value.

3. Revenue Per Share

Revenue Per Share = Total Revenue ÷ Shares Outstanding

This shows how much revenue each share represents.

4. P/S to Margin Ratio

If you enter a gross profit margin, the calculator also computes:

P/S to Margin Ratio = P/S ÷ (Gross Margin ÷ 100)

This adds context. A company with a 70% margin deserves a higher P/S than one with a 10% margin.

5. Valuation Assessment

The calculator classifies the result into:

• Below 1 → Potentially Undervalued
• 1 to 3 → Fair Value
• 3 to 10 → Growth Valuation
• Above 10 → Premium Valuation

This gives beginners a quick interpretation without needing complex analysis.

Example: How to Use the Calculator

Let’s walk through a simple example.

Assume:

• Stock Price = $50
• Shares Outstanding = 10 million
• Revenue = $500 million

Step 1: Calculate Market Cap

50 × 10,000,000 = 500,000,000

Market Cap = $500 million

Step 2: Calculate Revenue Per Share

500,000,000 ÷ 10,000,000 = 50

Revenue Per Share = $50

Step 3: Calculate P/S Ratio

50 ÷ 50 = 1

P/S Ratio = 1.0x

That means investors are paying $1 for every $1 of revenue.

That would generally fall into the “fair value” category.

How to Interpret the Price to Sales Ratio

The P/S ratio is not about right or wrong. It is about comparison.

Low P/S Ratio (Below 1)

• May signal undervaluation
• Could indicate slow growth
• Could also signal financial trouble

You need more context.

Moderate P/S Ratio (1 to 3)

• Often seen in stable businesses
• Balanced growth and profitability
• Common in mature industries

High P/S Ratio (Above 3)

• Investors expect strong growth
• Often found in tech or high-growth sectors
• Higher risk if growth slows

Very High P/S Ratio (Above 10)

• Premium pricing
• Market expects rapid expansion
• Can fall quickly if expectations are missed

When the P/S Ratio Works Best

The Price to Sales ratio is most useful for:

• Startups and growth companies
• Businesses with temporary losses
• Industry comparisons
• Long-term growth analysis

It helps answer:
Is this stock expensive compared to its revenue?

Limitations of the P/S Ratio

No metric is perfect.

The P/S ratio:

• Ignores profitability
• Ignores debt levels
• Does not reflect operating efficiency
• Can look cheap even if margins are weak

For example, two companies may both have a P/S of 2. But if one has a 60% gross margin and the other has 10%, they are not equally attractive.

That is why your calculator includes the gross margin input. It adds depth to the analysis.

P/S Ratio vs Other Valuation Ratios

Here is how it compares to other common metrics:

Each metric serves a different purpose. Smart investors often use more than one.

Practical Tips for Using the Calculator

1. Always compare to industry peers
2. Check historical P/S averages
3. Combine with margin analysis
4. Do not rely on one metric alone
5. Look at revenue growth trends

Think of the P/S ratio as a starting point, not the final decision.

Who Should Use a Price to Sales Ratio Calculator?

This tool is ideal for:

• Retail investors
• Stock market beginners
• Financial bloggers
• Equity research students
• Long-term growth investors

It simplifies valuation into clear, measurable numbers.