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This valuation method assumes that the stock valuation will revert to its historical mean in terms of Price/Sales Ratio. The reason we use P/S Ratio instead of P/E Ratio or P/B Ratio is because Price/Sales Ratio is independent of profit margin, and can be applied to a broader range of situations.
Median P/S Value is calculated as trailing twelve months (TTM) revenue per share times 10-Year median P/S ratio. Time Warner Inc's revenue per share for the trailing twelve months (TTM) ended in Dec. 2013 was $31.65. Time Warner Inc's 10-Year median P/S ratio is 1.35. Therefore, the Median P/S Value for today is $42.73.
As of today, Time Warner Inc's share price is $63.87. Time Warner Inc's median P/S value is $42.73. Therefore, Time Warner Inc's Price to Median P/S Value Ratio for today is 1.50.
During the past 13 years, the highest Price to Median P/S Value Ratio of Time Warner Inc was 16.60. The lowest was 0.51. And the median was 1.10.
Time Warner Inc's Median P/S Value for today is calculated as
|Median P/S Value||=||Total Annual Sales / Shares Outstanding||*||10-Year Median P/S Ratio|
|=||Revenue per Share (TTM)||*||10-Year Median P/S Ratio|
10-Year Median P/S Ratio is 1.35.
Time Warner Inc's revenue per share for the trailing twelve months (TTM) ended in Dec. 2013 was 7.26 (Mar. 2013 ) + 7.82 (Jun. 2013 ) + 7.3 (Sep. 2013 ) + 9.27 (Dec. 2013 ) = $31.65.
It also assumes that over time the profit margin is constant. If a company increases its profit margin to a sustainable level, this value might under-estimate its value. If it has permanent declined profit margins, this may over-estimate the companys value.
Time Warner Inc's Price to Median P/S Value Ratio for today is calculated as
|Price to Median P/S Value||=||Share Price||/||Median P/S Value|
Time Warner Inc Annual Data
Time Warner Inc Quarterly Data