Price to Sales Ratio (PSR) |
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Written by Ben
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Monday, 25 February 2008 |
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This is an important figure to look at. It will give you an idea as to whether a stock is cheap or expensive. PSR
is calculated by dividing the share price by the annual sales per
share. The lower the figure is the better. This, of course, must not be
taken in isolation to determine whether the stock is worth buying or
not. Its usefulness is to compare the valuation of companies within the
same industry. As a rule of thumb, companies with a PSR of less than one are considered cheap. Sales are also known as revenue or turnover. When
the earnings per share increase, sales must increase as well. If they
do not, there must be a reason. It is important you know why, to have a
better understanding of what is happening.
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