Multiples - Price-to-sales ratio
Maybe one of you can help me here.
Why would anyone use price-to-sales ratio (Equity value/sales) instead of EV/sales? Advantages of price to sales e.g. giving value indication of pre-profit companies are also applicable to EV/sales, but with the drawback that price to sales is not a clean metric given that it does not include net debt. Also net debt is usually not hard to find out. Does anyone know why price to sales is sometimes used for growth companies then?
Makes VCs feel comfortable about the ridiculous valuations they underwrite
I dont think they know the difference between EV and Mkt Cap
I’ve never seen Equity Value / Sales used instead of EV / Sales. Where are you seeing that? Is there an example you’re looking at?
Saw “Price to sales ratio” a lot in biotech and early growth companies
But for what reason?
For valuation purposes. But that is also what I am trying to get behind. Why it is used instead of EV / Sales
those companies typically have no debt anyway. but agree its an illogical metric
P/Sales is indeed a technically unsound methods. Only used for a quick and dirty valuation.
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