Financial Ratios for Specialty Retailer | Price-to-Sales, Price-to-Book, Price-to-Cash Flow Ratios

Price-to-Sales, Price-to-Book, and Price-to-Cash Flow Ratios for a Specialty Retailer

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Question

Assume the following information about a publicly traded specialty retailer:

Revenue: $6,500,000 -

Cash flow: $1,500,000 -

Net worth per share: $10.87 -

Number of common shares outstanding: 1,000,000

Current stock price per share: $28.37

Using this information, what are the price-to-sales, price-to-book, and price-to-cash flow ratios, respectively?

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Explanations

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A. B. C. D. E. F.

B

To calculate the price-to-sales ratio, divide the market price of a common stock by its sales-per share figure. The equation for the price-to-sales ratio is as follows:

Price-to-sales ratio = [P0 / sales per share].

Incorporating the given information into this equation will yield the following: Price-to-sales ratio = [$28.37 / ($6,500,000 / 1,000,000)] = 4.364

The calculation of the price-to-book ratio involves dividing the market price of a common stock by its net worth per share. The equation for the price-to-book ratio is as follows:

Price-to-book ratio = [P0 / net worth per share].

Where: net worth per share = (total assets - total liabilities) / # of common shares outstanding.

In this example, the net worth figure has been converted to a per-share basis, and the calculation of the price-to-book ratio is straightforward:

Price-to-book ratio = ($28.37 / $10.87) = 2.6099

The calculation of the price-to-cash flow ratio involves dividing the market price of a common stock by the cash-flow-per-share figure. The calculation of the price- to-cash flow ratio is as follows:

Price-to-cash flow = (P0 / cash flow per share)

Incorporating the given information into this equation will yield the following: Price-to-cash flow = [$28.37 / ($1,500,000 / 1,000,000)] = 18.91

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