Hi, I need to create a 5 page explanation with any of the following questions as

Question

Hi,

I need to create a 5 page explanation with any of the following questions as a research paper . ( APA format )

* What is a price to sales ratio; how is it used to value a company?

* Pick a publicly traded company, do a fundamental analysis and a valuation using one of the methods in Chapter 8 (Stock Valuation).

* Describe and explain American Depositary Receipts (ADR), their origin and uses.

* Describe and explain Purchasing Power Parity.

* Describe and explain The Capital Asset Pricing Model (CAPM) and give examples of how it can be used.

Explanation / Answer

* What is a price to sales ratio; how is it used to value a company?

Answer:

The price-to-sales ratio helps determine a stock’s relative valuation. The formula to calculate the P/S ratio is:

P/S Ratio = Price Per Share / Annual Net Sales Per Share

HOW IT WORKS (EXAMPLE):

Let's assume Company XYZ reports net sales of $5,000,000 and it currently has 500,000 shares outstanding. The stock is currently trading at $20.

Sales per Share = (5,000,000/500,000) = 10

Price-to-Sales Ratio = 20/10 = 2

Price-to-sales ratio is considered a relative valuation measure because it's only useful when it's compared to the P/S ratio of other firms. The P/S ratio varies dramatically by industry. For example, retail companies typically display a much higher P/S ratio than companies highly involved in research and development. Therefore, when comparing P/S ratios, make sure the firms are within the same industry.

The P/S ratio is useful because sales figures are considered to be relatively reliable. Other income statement items, like earnings, can be easily manipulated by using different accounting rules.

The price-to-sales ratio (Price/Sales or P/S) provides a simple approach: take the company's market capitalization (the number of shares multiplied by the share price) and divide it by the company's total sales over the past 12 months. The lower the ratio, the more attractive the investment. As easy as it sounds, price-to-sales provides a useful measure for sizing up stocks.

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