Price to sales

Market capitalisation divided by revenue. Used where earnings are negative or meaningless, most often for young companies.

A company valued at ₹12,000 crore on ₹4,800 crore of revenue trades at 2.5 times sales.

Its defect is that it ignores profitability entirely, and revenue with no path to margin is worth nothing. Two businesses on the same sales multiple with 20% and 70% gross margins are not comparably valued.

The enterprise-value version is the more defensible one, since revenue belongs to lenders as well.

Always ask what margin the multiple assumes.