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Price-to-sales ratio (P/S) P/S can be calculated by dividing market price per share by sales per share from the most recent financial year. Alternatively, by cancelling out the number of shares, one can obtain P/S by dividing market capitalization by total sales of the year. π = ππππππ‘ πππππ πππ π hπππ = ππππππ‘ πππππ‘ππππ§ππ‘πππ π π ππππ πππ π hπππ π‘ππ‘ππ π ππππ (3.2) P/S is often used for valuing companies that experience rapid growth of revenues but fluctuating, relatively little or even negative net income β it is suitable for valuing Internet companies that are yet to be profitable (Essence Securities, 2018). It shows how much investors value and are willing to pay for every dollar of the companyβs sales (McClure, 2019). Enterprise value-to-sales ratio (EV/S) EV/Sales is an expansion of P/S and is calculated by dividing companyβs enterprise value by its total sales. Enterprise value is the total market value of the company net of cash, it can be obtained by the addition of market value of equity and debt minus the companyβs cash position. (3.3) EV/Sales is usually perceived to be a better metric than P/S since it takes into consideration of the companyβs capital structure, including the companyβs long-term debt and cash position (Kenton, 2019). However, EV/Sales involves more steps and the information needed for obtaining EV is not readily available for all companies (Hargrave, 2019). When both companies in comparison are in the same industry and share a similar capital structure, EV/sales should result in a similar company valuation as P/S would. πΈπ = ππ + ππ β πππ h πππ’ππ‘π¦ ππππ‘ π π‘ππ‘ππ π ππππ - 23 -PDF Image | Analysis of ByteDance with a close look on Douyin TikTok
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