Data Analytics in Commercial Banking
Commercial banking has traditionally been a relationship-driven business. This meant that the business was primarily driven by human-to-human contact. Over the years, banks have acquired the capability to store large quantities of data and then mine the data in order to discover meaningful trends. There are many modern software tools that allow banks to use […]
Different Types of Accounts in a Business
The entity concept separates the concerns of the owners from the business. An extension of the same concept is the concept of accounts which splits up the business’s affairs further. The account concept becomes clearer once the double entry system of accounting is explained. That is done at a later stage in the tutorial. Transactions […]
Link Between Blockchain and Cryptocurrency
When a new investor enters the world of cryptocurrency, they often use two terms mentioned together. These two terms are “cryptocurrencies” and “blockchain”. The two terms are used together so often that it gives many investors the idea that they both mean the same thing. This is particularly true if the investors are not tech-savvy. […]
The Rise of Flat Tax
Governments all over the world generally levy graduated taxes on their population. This means that as the income being taxed increases, the tax rate also increases. Under a graduated tax structure, some amount of income is exempted from the tax. Then, there is a different tax slab, which becomes applicable as soon as the income […]
What is Cost of Equity? – Meaning, Concept and Formula
Theoretical Concept The cost of equity concept is very important when it comes to valuing shares on the stock market. Equity, like all other investment classes expects a compensation to be paid to its investors. The problem however is that unlike debt and other classes the cost of equity is never really straightforward. You can […]
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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