Which ratio compares a company's market capitalization to its annual revenue?

The ratio that compares a company’s market capitalization to its annual revenue is the price-to-sales ratio.

Its basic formula is market capitalization divided by revenue, usually revenue from the trailing twelve months. The same result can be calculated as share price divided by revenue per share. A P/S ratio of 3 means investors value the company at three times its annual sales, though that figure is not automatically cheap or expensive.

The ratio is especially useful when profits are negative, unusually volatile, or distorted by large accounting charges, because revenue remains available when the price-to-earnings ratio cannot be meaningfully interpreted. Analysts normally compare P/S ratios with companies in the same industry and with similar growth and margin profiles.

The main trap is confusing it with enterprise value-to-sales. EV-to-sales adds debt and subtracts cash from the valuation numerator, so it measures operating value independently of capital structure. Price-to-book compares market value with shareholders’ equity, while price-to-earnings compares it with net income. P/S ignores costs and profitability, so it should not stand alone.