Companies with no earnings or very volatile and highly unpredictable earnings
Some companies, like high tech startups, have little, if any, earnings.
If they do have earnings, they tend to be quite volatile and therefore highly unpredictable.
In these cases, valuation procedures based on earnings (and even cash flows) are not much help.
Price to Sales ratio or Price to Book Value ratio
Investors turn to other procedures - those based on sales or book value.
While companies may not have much in the way of profits, they almost always have sales and, ideally, some book value.
Some companies, like high tech startups, have little, if any, earnings.
If they do have earnings, they tend to be quite volatile and therefore highly unpredictable.
In these cases, valuation procedures based on earnings (and even cash flows) are not much help.
Price to Sales ratio or Price to Book Value ratio
Investors turn to other procedures - those based on sales or book value.
While companies may not have much in the way of profits, they almost always have sales and, ideally, some book value.
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