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Valuation Metric
The Market Cap to Sales ratio measures how much investors are willing to pay for each rupee of a company’s sales.Formula: Market Cap to Sales = Market Cap / Total Sales
Image Source: ETMarkets.com
What is Market Cap?
Market Cap (Market Capitalization) is the total value of a company’s outstanding shares of stock.Formula: Market Cap = Share Price × Total Shares Outstanding
Image Source: ETMarkets.com
What is Sales?
Sales represent the revenue a company earns from selling its products or services.Formula: Sales = Units Sold × Price per Unit
Image Source: ETMarkets.com
Why is it Important?
This ratio helps assess whether a company is overvalued or undervalued in relation to its sales.A low ratio: The company might be undervalued.A high ratio: The company might be overvalued.
Image Source: ETMarkets.com
How to Use the Ratio?
Look at the ratio in the context of industry standards and the company’s growth potential.A ratio of 1 or below might be undervalued.A ratio of 5 or above might indicate overvaluation.
Image Source: ETMarkets.com
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