Price to Sales Ratio Calculator

Price to Sales Ratio Calculator

Are you ready to learn about the most exciting thing in the financial world? Of course, I’m talking about the Price to Sales Ratio (PSR)! You might be thinking, “Wow, how can I contain my excitement?” But don’t worry, I’m here to guide you through this journey.

PSR Calculation Formula

The PSR is calculated by dividing the market capitalization of a company by its annual revenue. Don’t get scared by the formula, it’s quite simple. Here it is in code format:

PSR = Market Capitalization / Annual Revenue

Categories of PSR Calculations

Let’s break down the different categories of PSR calculations and their interpretation:

Category PSR Range Interpretation
High PSR > 5 The stock may be overvalued
Moderate PSR 1 – 5 The stock is reasonably valued
Low PSR < 1 The stock may be undervalued

Examples of PSR Calculations

Let’s see some examples of PSR calculations for different individuals:

Name Market Cap ($m) Annual Revenue ($m) PSR Calculation
Elon Musk 600,000 30,000 20
Jeff Bezos 1,500,000 380,000 3.94
Warren Buffet 500,000 250,000 2

As you can see, Elon Musk’s company has the highest PSR, which means it may be overvalued.

Different Ways to Calculate PSR

There are different ways to calculate PSR, here are some of them:

Method Advantages Disadvantages Accuracy Level
Trailing Twelve Months Uses most recent data Doesn’t account for seasonality Moderate
Forward Twelve Months Accounts for expected future revenue Can be less accurate than trailing twelve Moderate
Quarterly More recent data than annual Doesn’t account for seasonality Low
Rolling Four Quarters Accounts for seasonality Can be less accurate than annual High

Evolution of PSR Calculation

The PSR calculation has evolved over time, here’s a brief overview:

Time Period PSR Calculation
1920s Created by Benjamin Graham
1960s Became widely used in the financial industry
2000s Widely used for tech startups

Limitations of PSR Calculation Accuracy

It’s important to acknowledge the limitations of PSR calculation accuracy. Here are some of them:

  1. Historical Data: PSR is based on past performance, which may not predict future performance.
  2. Industry Differences: Different industries have different PSR ranges, so it’s important to compare companies within the same industry.
  3. Accounting Methods: Some companies may use different accounting methods, which can affect the PSR calculation.

Alternative Methods for Measuring PSR

There are alternative methods for measuring PSR, here are some of them:

Method Pros Cons
Price to Earnings Widely used in the financial industry Doesn’t account for revenue growth
Price to Book Accounts for book value of assets Doesn’t account for revenue growth
Enterprise Value Accounts for debt and cash balances Can be more complex than PSR

PSR Calculator FAQs

  1. What is a good PSR? A moderate PSR, between 1 and 5, is considered good.
  2. Is a high PSR good or bad? A high PSR, above 5, may indicate that the stock is overvalued.
  3. What is the difference between PSR and P/E ratio? PSR measures a company’s market value relative to its revenue, while P/E ratio measures a company’s market value relative to its earnings.
  4. What is a low PSR? A low PSR, below 1, may indicate that the stock is undervalued.
  5. What is the formula for PSR? PSR = Market Capitalization / Annual Revenue.
  6. What is the PSR for Amazon? Amazon’s PSR is currently around 4.25.
  7. What is the PSR for Tesla? Tesla’s PSR is currently around 20.
  8. How often should I recalculate PSR? PSR should be recalculated regularly, at least once a year.
  9. What industries have high PSR? Technology and healthcare industries are known to have higher PSR ranges.
  10. What is the PSR for Apple? Apple’s PSR is currently around 7.

Resources for PSR Calculations

Here are some reliable government and educational resources for further research:

  • Investopedia: Provides a detailed explanation of PSR and its calculation.
  • SEC EDGAR: Allows you to search for a company’s financial statements, including revenue and market capitalization.
  • Harvard Business Review: Provides an in-depth analysis of PSR and its usefulness in investment decisions.