The price-to-sales ratio (P/S ratio) compares a company's market value with its annual revenue. A P/S ratio of 1.5 means that the market value is 1.5 times annual revenue. Unlike the P/E ratio, the P/S ratio remains positive when a company reports a net loss, as long as revenue is positive.
PSRatio < 2 and NetProfitMargin > 0.05
How is the P/S ratio calculated?
P/S ratio = market capitalization / revenue
Alternatively, divide the share price by revenue per share. Both methods give the same result when they use the same share count. Critivest uses market capitalization and revenue from the last four quarters.
How are the P/S ratio, P/E ratio and profit margin related?
The P/S ratio is the product of the P/E ratio and the net profit margin:
P/S ratio = P/E ratio × net profit margin
This relationship holds when the calculations use the same earnings and revenue figures. Express the margin as a decimal, such as 0.1 for 10%. Two companies with the same P/S ratio can therefore have very different P/E ratios if their margins differ.
Price-to-cash-flow ratio (P/CF)
Price-to-cash-flow ratio = market capitalization / operating cash flow
The price-to-cash-flow ratio compares market value with cash generated by operations. Depreciation reduces earnings but does not reduce operating cash flow. For the price-to-free-cash-flow ratio, capital expenditures are first deducted from operating cash flow. Market capitalization is then divided by this free cash flow.
What does a P/S ratio of 1.5 mean?
For the fictional Example Company:
| Market capitalization | EUR 30 billion |
|---|---|
| Revenue of the last four quarters | EUR 20 billion |
| P/S ratio | 30 / 20 = 1.5 |
| Operating cash flow of the last four quarters | EUR 3 billion |
| Price-to-cash-flow ratio | 30 / 3 = 10 |
With net income of EUR 2 billion, the Example Company has a P/E ratio of 15 and a net profit margin of 10%: 15 × 0.1 = 1.5.
When is the P/S ratio of little use?
- The P/S ratio does not take costs into account: even a company that makes losses can have a low P/S ratio.
- Typical values depend on profit margins within an industry. Retailers with low margins usually have lower P/S ratios than software companies with high margins.
-
The P/S ratio does not take debt into account, although revenue is generated by the whole business. To compare
enterprise value with revenue in a
condition, use
EnterpriseValue / Revenue. - If operating cash flow is negative, the price-to-cash-flow ratio is negative too and not meaningful.
- Banks and insurers report revenue differently from other companies, so their P/S ratios are not directly comparable.
- A low P/S ratio only means that the market value is low relative to revenue. It says nothing about future developments.
Using the P/S ratio as your own criterion
You can combine the P/S ratio with a profit margin to include costs in your criteria. This condition is met if the P/S ratio is less than 2 and the net profit margin is above 5%. Enter percentages as decimals in conditions: 5% becomes 0.05.
PSRatio < 2 and NetProfitMargin > 0.05
The price-to-cash-flow ratio is called PriceToOperatingCashFlow in conditions. Add a check that this
ratio is greater than 0 to exclude negative cash flow. You set the limits yourself; they are examples, not a
recommendation.
Which data does Critivest use for the P/S ratio?
Market capitalization is the latest stored market value. Revenue and operating cash flow are totals for the last four quarters. If four complete quarters are not available for a figure, Critivest uses the latest fiscal year's total instead. Reported amounts are converted to the stock's currency.
Periods and missing values: Methodology.
Formula reference in Critivest
Name in conditions: PSRatio
PSRatio = MarketCapitalization / RevenueMarket capitalization divided by revenue of the last four quarters
Name in conditions: PriceToOperatingCashFlow
PriceToOperatingCashFlow = MarketCapitalization / OperatingCashFlowMarket capitalization divided by operating cash flow of the last four quarters
Names used in conditions
MarketCapitalization- Market capitalization
Revenue- Income statement, last 4 quarters or fiscal year: Revenue
OperatingCashFlow- Cash flow, last 4 quarters or fiscal year: Operating cash flow
Related formulas
- P/E ratio (price-to-earnings ratio): The P/E ratio divides a company's market value by its earnings. Critivest calculates it from the market capitalization and the earnings of the last four quarters.
- Profit margins: Profit margins show how much revenue remains at different stages of the income statement. Formulas and examples explain net, gross, EBITDA and EBIT margins.
Sources
- Company valuation ratios: Price-to-sales and Price-to-cash flow, Fidelity
- Market-Based Valuation: Price and Enterprise Value Multiples, CFA Institute
- Price-to-cash flow ratio, Wikipedia
Last updated: November 4, 2026