The Price-to-Sales (P/S) ratio is a valuation metric that compares a company's market capitalisation to its total revenue — measuring how much investors are willing to pay for each rupee of the company's sales. It is calculated as: P/S Ratio = Market Capitalisation ÷ Annual Revenue, or equivalently, Market Price per Share ÷ Revenue per Share. The P/S ratio is particularly useful for valuing companies that are not yet profitable — such as early-stage technology, e-commerce, or startup businesses — where traditional metrics like P/E ratio cannot be applied. In India, the P/S ratio gained prominence during the listing and valuation of new-age digital businesses including Zomato, Paytm, and Nykaa, where revenue growth and market share were more relevant to valuation than near-term profitability. A lower P/S ratio relative to industry peers suggests the stock may be undervalued relative to revenue generation, while a very high P/S ratio implies the market is pricing in substantial future revenue growth and margin improvement.
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