Fundamental Glossary / Valuation Ratios
P/S Ratio (Price-to-Sales Ratio)
Market capitalization divided by revenue. It prices the company on sales when earnings are absent or not comparable.
Formula
Market capitalization / revenue. Enterprise value / sales is the related ratio that includes debt.
What it means
Sales are harder to manipulate than profit and are available for young or cyclical companies that currently lose money. P/S therefore shows up in screens of early-stage and turnaround names.
A rupee of sales is not a rupee of value. The ratio ignores margins, capital needs, and debt.
How to read it
Compare P/S only inside an industry with similar gross margins. A software firm and a distributor can have the same sales and very different economics. A falling P/S alongside falling margins is not getting cheaper in any useful sense.
What to watch
Check revenue quality. Channel stuffing, one-time contracts, and related-party sales inflate the denominator. Also prefer EV/Sales when companies carry different amounts of debt.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.