Helpful Ratios

Primary metrics to understand and look at

Earnings per Share (EPS)

Company's profit / Outstanding shares of common stock (Total shares)

How much money a company makes for each share of stock. Commonly used for estimating corporate value.

A higher EPS commonly indicates greater value, because investors will often pay more for a company's shares if they believe the company has higher profits relative to its current share price.

Price to Earnings ratio (P/E)

Market value per share / Earnings per share (EPS)

Price to Sales ratio (P/S)

Company's total market capitalization / trailing 12 month revenue.

P/S represents how much value investors are receiving from a company's stock by indicating how much equity is needed to deliver 1$ of revenue. Generally, a lower P/S ratio indicates that the company is making more revenue for every dollar invested.

This metric is used to evaluate a company's stock price relative to its revenue per share. A lower P/S ratio might indicate that a company is undervalued compared to its revenue, while a higher ratio could indicate overvaluation. It is typically not used for newer, smaller companies. It serves a good purpose to value companies who are not explicitly profitable.

The P/S ratio can be useful for evaluating companies that are in early stages of growth and may not yet be profitable. A low P/S ratio combined with strong revenue growth may suggest that a company has significant potential for future earnings growth. P/S ratios are best used in comparison to other competing industries.