money guidance and how to get rich_252

_{The price-to-sales ratio (PSR) can be a handy measure to use instead}

_{of a price-to-earnings (P/E) ratio if you're dealing with a company that}

_{The PSR takes the market capitalization of a company and divides}

_{it by the last 12 months' revenues. Remember that the market cap}

_{is the current value that the market is giving the company, arrived}

_{at by multiplying the current share price by the number of shares}

_outstanding.

_{Imagine Iditarod Express (ticker: MUSH), famous for its slogan,}

_{"When it absolutely has to get to a remote corner of Alaska in the}

_{next few weeks." If MUSH has 10 million shares outstanding priced}

_{at $10 a share, then its market capitalization is $100 million. If it had}

_{$200 million in sales over the last four quarters, its PSR would be}

_{0.50 ($100 million divided by $200 million equals 0.50). Compare the}

_{PSR with sales growth. A high PSR isn't necessarily bad if sales are}

_{growing rapidly.}

_{The price-to-sales ratio is especially handy with start-ups, small-cap}

_{companies, and unprofitable firms. Assume that Iditarod Express lost}

_{money in the past year, but has a PSR of 0.50 when its peers have}

_{PSRs of 2.0 or higher. If it can turn itself around and start making}

_{money, it's likely to have substantial upside potential if it can match}

_{competitors' profit margins. There are some years during recessions}

_{when none of the auto companies are profitable. This doesn't mean}

_{they're all worthless and there's no way to compare them. You can}

_{just use measures such as the PSR instead of the P/E ratio. Measure}

_{how much you're paying for a dollar of sales instead of a dollar of}

_earnings.

_{Despite its usefulness, the PSR should never be the only number you}

_crunch.

_{The PSR can sometimes give you a nice context for a company's value}

_{relative to its industry peers, but while sales growth is great, those}

_{sales must be transformed into meaningful and rising earnings to}

_{make shareholders happy. Some companies have massive and growing}

_{revenues, but little earnings to show for it. How much a company}

_{earns from its sales will eventually drive the value of the business}

_{and the stock.}