TwitterMe, Inc., is a new company and currently has negative earnings. The compa

Question

TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1,400,000 and there are 140,000 shares outstanding.

If the benchmark price-sales ratio for the company is 5.4, how much will you pay for the stock?

If the benchmark price-sales ratio for the company is 4.8, how much will you pay for the stock?

TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1,400,000 and there are 140,000 shares outstanding.

If the benchmark price-sales ratio for the company is 5.4, how much will you pay for the stock?

If the benchmark price-sales ratio for the company is 4.8, how much will you pay for the stock?

Explanation / Answer

Price Sales Ratio = Market Capitalisation/Total Sales 5.4 = Market Capitalisation/1,400,000 Market Capitalisation = 1400,000*5.4 = $7,560,000 No of shares = 140,000 Price to be paid = 7,560,000/140,000= $54 Price Sales Ratio = Market Capitalisation/Total Sales 4.8 = Market Capitalisation/1,400,000 Market Capitalisation = 1400,000*4.8 = $6,720,000 No of shares = 140,000 Price to be paid = 6,720,000/140,000= $48

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