Understanding Price to Sales Ratio

This video tutorial explains how to calculate the price to sales (PS) ratio, using example problems to illustrate the concept. It covers the formula for PS ratio, demonstrates calculations for different stocks, and explains the significance of PS ratio values. The video also reviews key concepts, emphasizing the relationship between PS ratio and company sales.

What is the formula for calculating the Price to Sales Ratio?

• Annual Sales minus Market Capitalization

• Market Capitalization multiplied by Annual Sales

• Annual Sales divided by Market Capitalization

• Market Capitalization divided by Annual Sales

How do you calculate the market capitalization of a company?

• Add the share price to the number of shares outstanding

• Multiply the share price by the number of shares outstanding

• Divide the share price by the number of shares outstanding

• Subtract the share price from the number of shares outstanding

What does a PS ratio of less than 1 indicate?

• Sales are less than the market cap

• Sales are greater than the market cap

• Sales are double the market cap

• Sales are equal to the market cap

If a company has a market cap of 450 million and annual sales of 750 million, what is its PS ratio?

• 1.5

• 2.0

• 0.6

• 0.8

What does a PS ratio of 1 mean?

• Sales are double the market cap

• Sales are less than the market cap

• Sales are greater than the market cap

• Sales are equal to the market cap

How can you calculate the annual sales if you know the market cap and PS ratio?

• Divide the market cap by the PS ratio

• Multiply the market cap by the PS ratio

• Add the market cap to the PS ratio

• Subtract the PS ratio from the market cap

For a company with a market cap of 2 billion and a PS ratio of 0.25, what are the annual sales?

• 2 billion

• 0.5 billion

• 8 billion

• 0.25 billion

What happens to sales as the PS ratio decreases?

• Sales increase

• Sales decrease

• Sales remain constant

• Sales become negative

If a company has a high PS ratio, what can be inferred about its sales?

• Sales are low

• Sales are high

• Sales are equal to the market cap

• Sales are double the market cap

Which company has the highest sales if all have a market cap of 1 billion but different PS ratios?

• Company with PS ratio of 5

• Company with PS ratio of 10

• Company with PS ratio of 1

• Company with PS ratio of 0.1