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An Analytical Approach to Comparing Actual Vs. 'Fundamental Price-to-Sales' and “Enterprise Value-to-Sales†Ratios on the European Stock Market

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  • Dimiter Nenkov Nenkov

Abstract

This study is focused on the “price-to-sales ratio†(P/S) and the “enterprise value-to-sales ratio†(EV/S), which are used in relative valuation, in the analysis of companies’ performance, as well as in the analysis of different sectors and of the market. Special attention is paid to certain important requirements, related to the correct interpretation of market and sector averages of these ratios nowadays, including against the background of their historic levels. The identification, justification and use of the proper market ratios requires in-depth knowledge of their essence and of the fundamentals which drive their levels. In this connection, the logic of the fundamental “price-to-sales†(P/S) and the “enterprise value-to-sales†(EV/S) ratios is explained. These two fundamental ratios for the European stock market are calculated and compared with the actual P/S and EV/S. The results of the study indicate that the current levels of the actual P/S and EV/S of the European stock market are much higher than the levels suggested by fundamentals.

Suggested Citation

  • Dimiter Nenkov Nenkov, 2016. "An Analytical Approach to Comparing Actual Vs. 'Fundamental Price-to-Sales' and “Enterprise Value-to-Sales†Ratios on the European Stock Market," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 32-49.
    • Handle: RePEc:ers:ijebaa:v:iv:y:2016:i:4:p:32-49
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    References listed on IDEAS

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    1. Pablo Fernández & Andrada Bilan, 2013. "110 Common Errors in Company Valuations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 33-78.
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    3. Konstantinos Liapis & Eleftherios Thalassinos, 2013. "A Comparative Analysis for the Accounting Reporting of “Employee Benefits†between IFRS and other Accounting Standards: A Case Study for the Biggest Listed Entities in Greece," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 91-116.
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    Cited by:

    1. Isidora Tachmatzidi, 2018. "Takeover Defenses in the United Kingdom," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 105-118.
    2. repec:ers:journl:v:vi:y:2018:i:4:p:105-118 is not listed on IDEAS

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    More about this item

    Keywords

    tock markets; relative valuation; market ratios; P/S ratio; EV/S ratio; fundamentals JEL Classification: G12; G15; G23; G32;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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