Advantages of Strategic Financial Management
The field of strategic financial management has become increasingly popular in the past few years. This has been because of the various advantages that accrue to the practitioners of this philosophy. In this article, we will have a closer look at some of the important advantages which result from following this philosophy. Aligns The Vision […]
Artificial Intelligence in Commercial Bank Lending
We have already seen the various ways in which technology has shaped the commercial banking domain. However, the commercial banking domain is so vast that it is being concurrently affected by many big changes. The increasing use of artificial intelligence for commercial lending is another important trend that is impacting the commercial bank lending industry. […]
Essential Vs Non-Essential Retail
The retail sector is often considered to be a part of a single industry that has similar characteristics. However, this is not necessarily the case. It needs to be understood that the retail sector is very diverse. There are many different types of businesses which operate in this sector. These businesses have considerably different characteristics. […]
The Narrative Fallacy
In an ideal world, investors are supposed to look only at cold hard facts and analyze them while making an investment decision. However, till now, we know the fact that any of these decisions are not 100% rational. There is always an iota of emotions mixed in decision making, even for the most rational investors. […]
The Importance of Forex Education
Some Forex traders fail because they try to run even before they can walk. You may be passionate about trading Forex, but that does not mean that jumping headfirst into the trading will do you any good. Like all other professions, Forex needs training too. A period of theoretical education followed by a period of […]
Price to Sales Ratio = Current Market Price / Reported Sales Revenue
Many companies state their revenue after removing the effects of onetime events whereas others continue to state the revenue without any adjustments.
The price to sales ratio tells an investor how many dollars they are paying for every dollar that the company has in sales. Hence if the price to sales ratio is 3, investors are paying 3 dollars for every dollar in sales. This needs to be benchmarked against the industry average to understand the context.
As in all market value ratios, there is an unrealistic assumption in price to sales ratio too. The assumption is that sales will continue to behave in the same manner for an extended period of time. However, analysts are not so concerned about sales being absolutely flat for an extended period of time. They are more concerned about the average value of sales for the future periods being the same or higher than it currently is.
As an absolute measure, price to sales ratio may not be perfect. However, ration analysis is not about absolute perfection. Price to sales is a better indicator of the fundamentals of the company as compared to price to book value, in the opinion of many critics.
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