Equinox Bioengineering began operations one year ago. In its first year of operation, sales were $85 million and the net loss was $(5.1 million). Free cash flow was $(300,000). Equinox has 10 million shares outstanding. If you think the price to sales ratio for this company should be 1 or less, what is the most you should pay per share?
A) $85.00
B) $8.50
C) $51.00
D) Such a stock would have no value at all.

Question

Quizplus · Accepted Answer

The price to sales ratio is calculated as the market capitalization (price per share times number of shares) divided by sales. If the ratio should be 1 or less, and sales were $85 million with 10 million shares outstanding, the market cap should be $85 million or less. Dividing $85 million by 10 million shares gives a maximum price per share of $8.50.

Equinox Bioengineering Began Operations One Year Ago