Audit P/S claims in the classroom: sales, margins and periods

Distribute comparable cards and a checking card

Plan around 25 minutes. Two fictional companies have equity market capitalisation of SEK 1,200 million on the same date. A has full-year sales of 800 million and profit of 80 million. B has full-year sales of 1,200 million and a loss of 60 million. All amounts use the same SEK currency and equally long reporting periods. Market cap is a dated observation, while sales and result cover periods.

An extra C card has market cap of SEK 600 million and sales of 400 million for only half a year. It must not slip into the same full-year comparison. No even seasonal pattern is assumed, and we do not automatically double the half-year figure. Ask the calculator to mark currency, date and period before performing the first division.

If the table does not fit, scroll it sideways.

Keep the two measures separate in the fact box

P/S is market cap divided by sales for the specified period: A has 1,200 / 800 = 1.5 and B has 1,200 / 1,200 = 1. Margin is result divided by sales: A has 80 / 800 = 10 percent and B has −60 / 1,200 = −5 percent.

B’s higher sales produce lower P/S at the same market cap, but B also reports a loss. A positive profit is not needed to calculate P/S from these cards; a positive ratio can therefore conceal a negative result. With zero sales, our quotient is undefined. Do not enter zero just to make the table look complete.

Rewrite a headline that promises too much

The writer initially receives B is cheaper and therefore the best purchase. The editor replaces it with a verifiable statement, such as B has lower P/S in the cards but a negative margin. None of these numbers alone settles reasonable valuation, future growth or which investment is suitable. Make the remaining questions visible.

CFA Institute’s public summary explains that P/S does not account for differences in cost structure and can be inadequate for loss-making businesses. Use this as background to the checking question. The group’s numbers are independent fictional inputs rather than CFA examples or an assessment of any real company.

Submit a short fact box and an open question

Present the four calculations for A and B, the revised headline and the reason C lacks a comparable full-year period. Add a question about further relevant evidence, such as cost development or the sales definition. That question requests facts; it should not be filled with an invented forecast to complete the presentation.

See Investiq’s company-search guide for the described route to companies and price development. The class builds its P/S table manually and requires no financial-ratio filtering feature in the app. Use the concept lesson before the workshop if the ratio is new. Afterwards, the revenue-headline activity practises similar care when discussing growth claims.