Price/Sales (P/S)
Market cap divided by a year of revenue. EV/Sales is the same idea, adjusted for debt and cash.
Worked example · a round-number company
Market cap$10.0B÷Revenue, 12 months$5.0B=P/S2.0xHow to read it
↓Lower is better. Prefer EV/Sales when a company carries a lot of debt or cash.
Keep in mind
- Ignores debt: a heavily indebted company looks cheaper on P/S than it is.