What is the price-to-sales ratio?

How it is calculated

Divide the market cap by revenue. Costco: $467 billion / $303 billion = 1.54. So you pay $1.54 for each dollar of goods Costco sells in a year.

P/S for the largest companies right now

Banks and holding companies are left out: Berkshire Hathaway and JPMorgan Chase. What they earn is not sales in the usual sense. Much of a bank's income is interest, and an insurance and holding group's income is a mix of premiums and gains on what it owns.

Why the numbers differ so much

Costco kept 3.0% of its sales as profit in its last fiscal year, and Visa 50.1%. So it is no surprise that a dollar of sales is valued differently: 1.54 against 17.21. The highest in the table is Palantir at 53.02.

The link can be worked out. Companies A and B both have a P/E of 20. A keeps 10% of sales as profit, B only 3%. Then A's P/S is 2.0 and B's 0.6, even though you pay the same for the earnings of both.

So a good P/S ratio only means something next to companies with about the same margin, usually in the same industry. Between a warehouse club and a card network, the gap mostly tells you about the two businesses.

When people use it

When there is no profit. A company with a loss has no meaningful P/E, but it does have sales. That is why P/S turns up more often for young companies that are not making money yet.

When profit is low for a while. Sales usually swing less than profit, so the number jumps less from year to year.

What it can't see

Sales are not profit. A company can sell more and more and still lose money on every item.

It doesn't see debt either. Market cap is only what the shares are worth, so two companies with the same P/S can have very different loans.

More numbers are on Costco's stock page.