Market Cap to Sales

Market to Sales ratio defines, how much investors are willing to pay to buy the stocks for every Rs 1 of sales

Formula:

     Market Cap to Sales = Market Capitalization / Sales of the company

Example:

If a company XYZ makes sales of Rs 100 cr in the current year and the Market capitalization is Rs 5000 Cr. Then, Market Cap to sales is 50.

Investors are willing to pay Rs 50 to buy this company for every Rs 1 of sales made by the company.

How to Use it practically

The nice thing about this ratio is that sales are typically cleaner than reported earnings because companies that use accounting tricks usually seek to boost earnings. 

This relative smoothness of sales makes this ratio useful for quickly valuing companies with highly volatile earnings, by comparing the current Market Cap to Sales ratio with historical Market Cap to sales ratios of the same company.

This ratio is best suited to value a new age fast growing loss-making company

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Article Info

Published Date: November 1, 2021
Author: Valarmurugan

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