Investing Basics

nkalansu · 1 Investing Basics Thu Jul 14, 2011 1:49 pm

nkalansu

Senior Manager - Equity Analytics

Posts : 335
Equity Stars : 5384
Reputation : 58
Join date : 2011-06-11
Age : 47

Do you know what is PSR (Price to Sales ratio) ?

This is a ratio used by investors to identify a stock which is undervalued and is at a bargain price.
Basically what you do is you divide the Market capitalization (market value) of the company by its sales figure for the last 12 months. As a general rule stock trading at PSR of 1 or less than 1 is worthy of your attention.

Eg. Company ABC has a issued shares of 300 Million. Current market price is Rs. 50/=. Revenue for the period ending 31.03.2011 is Rs. 18 Billion (Rs. 18,000 Millions).

Market cap = 300 X 50 = Rs. 15,000 Millions

PSR = 15,000 / 18,000 = 0.83.

This means you can buy Rs. 1/= worth of company's sales for just 83 cents. So its at a bargain.

This can be used alongside with PER and PBR to value a stock. This is more suitable to value a company which sells tangible goods than valuing a company which offer services.

Surangaby · 2 Re: Investing Basics Thu Jul 14, 2011 10:42 pm

Surangaby

Senior Equity Analytic

Posts : 78
Equity Stars : 4995
Reputation : 5
Join date : 2011-06-20
Location : Pearl Of Indian Ocean

nkalansu wrote:Do you know what is PSR (Price to Sales ratio) ?

This is a ratio used by investors to identify a stock which is undervalued and is at a bargain price.
Basically what you do is you divide the Market capitalization (market value) of the company by its sales figure for the last 12 months. As a general rule stock trading at PSR of 1 or less than 1 is worthy of your attention.

Eg. Company ABC has a issued shares of 300 Million. Current market price is Rs. 50/=. Revenue for the period ending 31.03.2011 is Rs. 18 Billion (Rs. 18,000 Millions).

Market cap = 300 X 50 = Rs. 15,000 Millions

PSR = 15,000 / 18,000 = 0.83.

This means you can buy Rs. 1/= worth of company's sales for just 83 cents. So its at a bargain.

This can be used alongside with PER and PBR to value a stock. This is more suitable to value a company which sells tangible goods than valuing a company which offer services.

Hey nkalansu, thanks for sharing dis. this helps new comers a lot. I'll try to apply dis to a real company & see. Thanks again! cheers

RichDad · 3 Re: Investing Basics Fri Jul 15, 2011 1:32 pm

RichDad

Manager - Equity Analytics

Posts : 184
Equity Stars : 5236
Reputation : 42
Join date : 2011-05-27
Location : Colombo

nkalansu, thanks for sharing this. Keep up the good work!

Tiger · 4 Re: Investing Basics Fri Jul 15, 2011 2:21 pm

Tiger

Assistant Vice President - Equity Analytics

Posts : 700
Equity Stars : 5722
Reputation : 85
Join date : 2011-06-03
Location : Dubai

This is fine, probably more accurate method could be to value the whole company not the share. I am not going to elaborate on the methodology here.

food for thought if you have time.

Surangaby · 5 Re: Investing Basics Fri Jul 15, 2011 2:54 pm

Surangaby

Senior Equity Analytic

Posts : 78
Equity Stars : 4995
Reputation : 5
Join date : 2011-06-20
Location : Pearl Of Indian Ocean

Tiger wrote:This is fine, probably more accurate method could be to value the whole company not the share. I am not going to elaborate on the methodology here.

food for thought if you have time.

Great pair of K-9's You'v got !!!!!! lol!

nuwan.um · 6 Re: Investing Basics Sat Jul 16, 2011 11:29 am

nuwan.um

Equity Analytic

Posts : 34
Equity Stars : 5007
Reputation : 0
Join date : 2011-04-21
Age : 41
Location : Colombo

Thanks for sharing...

Kithsiri · 7 Re: Investing Basics Sat Jul 16, 2011 1:07 pm

Kithsiri

Senior Vice President - Equity Analytics

Posts : 1758
Equity Stars : 7284
Reputation : 132
Join date : 2011-03-25
Age : 66
Location : රජ්ගම

"This is fine, probably more accurate method could be to value the whole company not the share. I am not going to elaborate on the methodology here".
Full explanation is not needed but a clue or two too, what to look for would be handy for a person like me.
Thanks.