9/12/2023 0 Comments Compare stocks statsTo say it another way, every dollar of Company A's sales are currently more valuable because it's shown it can squeeze more profit from those dollars. This is an indirect way of identifying that Company B might not be quite as efficient at capturing profits from its sales. Somewhere along the way of collecting "top-line" revenue and generating "bottom-line" earnings, Company A is doing something differently than Company B. On the surface, they're equal, right? But there's something else we can glean here by comparing the price-to-sales ratios with the P/E ratios.Ĭompany A's investors are paying the same multiple as Company B's for sales but a lower multiple for earnings or profit. Let's look at the next metric, the price-to-sales ratio.īoth Company A and Company B have a price-to-sales of 2, which means an investor is paying a multiple of $2 for every dollar of revenue the company receives through sales. All else equal, a value investor typically prefers a lower P/E ratio, so Company A appears to be more attractive. Company B has a P/E of 15, which is more expensive. We'll compare the companies' valuation ratios and other characteristics side-by-side, starting with the most common: price-to-earnings, or P/E, ratio.Ĭompany A has a P/E of 10, which means investors are essentially paying $10 for every $1 of the company's annual earnings. Let's assume they're in the same industry and selling the same types of products. In this example, we have two companies: Company A and Company B. Let's practice by looking at the valuation ratios of two hypothetical companies and determine which might be a better value investment. Narrator: Financial ratios can help investors compare two companies of different sizes and characteristics. Environmental, Social and Governance (ESG) Investing.Bond Funds, Bond ETFs, and Preferred Securities.ADRs, Foreign Ordinaries & Canadian Stocks.Environmental, Social and Governance (ESG) ETFs. Environmental, Social and Governance (ESG) Mutual Funds.Benefits and Considerations of Mutual Funds.
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