The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is a price to sales ratio?” Very much like we did yesterday on the podcast where we talked about price to earnings ratios or PE ratios, today, we’re going to talk a little bit more about price to sales ratios. The price to sales ratio is basically what it sounds like. You basically take the share price of the company and you divide that out by the sales per share to get an accurate representation of how much money each unit of the company, each share price of the company is generating in revenue. And the reason why investors want to take a look at this as again, one metric of many to determine if they want to make an investment in a security or a private company or an equity deal is because we want to know how much top line revenue the company is generating and if their earnings are coming more from revenue growth or coming more from cost-cutting and optimization metrics