Sales Per Share

What Is Sales Per Share?

Sales per share is a ratio that processes the total revenue earned per share over a designated period, whether quarterly, semi-yearly, every year, or trailing twelve months (TTM). It is calculated by partitioning total revenue by average total shares outstanding. It is otherwise called "revenue per share."

Figuring out Sales Per Share

The sales-per-share ratio is helpful as a quick look into a company's business activity strength. It recognizes a company's productivity for every share. The higher the ratio, the more grounded the business is by all accounts, to some extent in terms of the top line. On the off chance that a company had $100 million in sales in a single year with an average of 10 million shares outstanding (average of the beginning of the year and the year's end), then the sales-per-share ratio would be 10x.

Sales per share can be utilized by investors to follow historical trends, compare with comparative companies in the sector, and even plot the ratio on a business cycle chart, which could show whether the ratio was above, below, or where it ought to be in that particular part of the cycle.

Limitations of Sales Per Share

Sales per share is a pure ratio, that is to say, there are no superfluous effects or accounting characteristics that can influence the number. For the earnings-per-share (EPS) ratio, an investor can make changes in accordance with the main concern to compute what is known as "core earnings" to acquire a better perspective on the company's earnings situation. Sales per share, then again, which by definition disregards everything below the top line, has nothing to say regarding a company's EBIT or net profit edges.

The sales-per-share ratio is fairly insignificant without EPS to evaluate the profitability of the firm. If sales per share were to hop over time, one might reason that the company was performing better. That may not be the case in the event that the company made a large acquisition by expanding its debt loads, or then again in the event that the extra sales required marketing and other operating expenses that brought down overall EBIT edges.

For another scenario, envision that the company bought back and retired a few outstanding shares to reduce the share count, however the repurchase was executed at a moment when the stock price was overvalued. The sales-per-share ratio, with a lower denominator, would be higher, however the capital allocation decision of management would need to be questioned by shareholders. Additionally, if sales per share as a ratio could be subject to manipulation by management to meet a target in the executive compensation plan, the ratio would have even less utility.

Features

• Sales per share can be a restricting number as it just gives knowledge into a company's revenues, and doesn't think about any debt or expenses on how those revenues were accomplished.
• Investors and analysts use sales per share to compare companies in a comparative sector and to compare how the company is performing over various periods of time.
• To work out sales per share, isolated total revenue by the average total shares outstanding.
• Sales per share is a financial ratio that measures the total revenue earned per share throughout a specific time span.
• Sales per share gives a quick look in recognizing a company's productivity for each share outstanding. The higher the sales-per-share ratio, the better a company is commonly performing.