Note: Effective November 30, 2005, we will make a slight change to the methodology for calculating trailing-12-month (TTM) price-to-earnings, price-to-book, price-to-sales, and price-to-cash-flow for funds and other portfolios. We will now use a harmonic weighted average, rather than an arithmetic weighted average. The harmonic method prevents outliers from skewing the result, and it is consistent with our existing methods for calculating prospective price ratios. This change will not impact the Morningstar Style Box assignments for portfolios.
This represents the weighted average of the price/sales ratios of the stocks in a fund's portfolio. Price/sales represents the amount an investor is willing to pay for a dollar generated from a particular company's operations.
Benefits
Price/sales is a valuation measure that indicates how much an investor is paying for a revenue stream. Because revenue measures are less subject to accounting standards than many financial statement figures, this valuation measure is more useful than many others in comparing stocks from different countries. It can thus be useful for international funds. Still, without information about the profit margins of the underlying stocks, this statistic is of limited use. This is less of a problem for specialty funds, since margins across specific industries are more consistent.
Origin
Morningstar generates this figure based on the fund’s portfolio and stock statistics, provided by Lotus WorldScope and our internal databases.