Used in sectors where firms struggle to make profits, this ratio compares a firm’s share price to revenue (or, sales) per share.

So if a firm has a share price of say £2 and makes sales of 80p per share, the price to sales ratio is 2.5 (£2/80p). A high number indicates that the shares are expensive. It is also worth noting that buying shares on the basis of sales alone can be dangerous if a firm is not also able to generate profits and cashflow.

READ MORE