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Finance GlossaryPrice-to-Sales (P/S) Ratio
Price-to-Sales (P/S) Ratio
Definition of Price-to-Sales (P/S) Ratio
The Price-to-Sales (P/S) Ratio is a valuation metric that divides a company's current market capitalisation by its total sales or revenue of the last twelve months. It is used to gauge the amount investors are willing to pay for every rupee of a company's revenue. This ratio is useful when looking at companies that are not yet profitable or have volatile earnings, because revenue is often less volatile and less susceptible to accounting manipulations than earnings are. A lower P/S ratio is often thought to be more favorable.
Related Terms
Macro Analysis
Macro analysis is the study of broad economic factors that influence financial markets as a whole. It includes interest rates, inflation, economic growth, government policies, and global events that shape overall market direction.
Box Spread
A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:
- Bull call spread : two call options with a lower and upper strike price
- Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration
Futures
Futures are derivative contracts that serve as an agreement and obligation between two parties to buy or sell underlying securities at a pre-agreed price and date. Underlying securities in futures can be stocks, bonds, interest rates, currencies, and commodities.
Forex Options
Forex options are exchange-traded derivative contracts that give the right but not the obligation to buy or sell a pair of underlying currencies at a pre-agreed price and date. Forex options are also known as currency options.
Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.
In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.
Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.
In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.
Volatility
Volatility refers to the degree of price fluctuations in a security or market over a period of time. A highly volatile stock may move sharply up or down within short durations, such as technology stocks during earnings announcements, while low volatility indicates more stable and predictable price movements.
India VIX
India VIX is an index that measures volatility and market sentiment. The term VIX stands for Volatility Index and thus, the full form of India VIX is Indian Volatility Index.
A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.
India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.
However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.
A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.
India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.
However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.
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