PRICE-NET SALES RATE
One of the important rates in the market is the price / net sales ratio.
What do you look at when an investor or a capitalist needs to buy a company? When you ask a question, probably one of the answers will be sales. A company's sales and market share are important to purchases. For this reason, this rate is frequently used by analysts in company valuation (If we consider this rate as a macro, the stock market's potential is calculated by comparing the stock market index with the Nominal GDP).
Calculation method is the annualized (last four quarters) sales divided by the market value of the company.
So, in which situations would it be meaningful or meaningless to look at this ratio? This question is an important question. Of course, this rate is not logically applicable to companies that do not sell. For holdings, for example, it would be meaningless to look at this ratio.
If a company's F / K ratio is not healthy, looking at the F / NS ratio gives more meaningful results. However, if a company's profits are in a situation that is very volatile or constantly explaining losses, even if the F / NS ratio is low, it does not mean that the company will be cheap. In this context, if we consider other variables, it can generally be expected that the market value of a company will be equal to its sales. Of course, there is no such certainty. When making the valuation, analysts can derive a potential based on the average, peak and bottom points of the relevant company's past F / NS ratio. While using this potential, it applies it based on the sales that the company will make in the coming years.
Another method can be made by comparing the F / NS rates of similar domestic and foreign companies in the same sector. This results in different results in the valuation, depending on the analyst's perspective and way of weighting.
We previously stated that our sales in the Çiğköfte shop were 600 thousand TL. The market value of the company was also 600 thousand TL, so the current F / NS ratio will be 1. However, if our expectation for the next years is an increase in sales, we can expect a higher market value of the company. Below you will see that the potential return has increased to 66% compared to the 2022 forecast year after the decrease in the F / NS ratio with the increase in estimated sales for the next years.
In the next article, we will discuss the Firm Value / EBITDA ratio.
AUTHOR:
Yilmaz Altun
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The ratings contained herein are based on comments and personal opinions. These views may not be suitable for your financial situation and risk and return preferences.
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