Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-17

One of the most widely used tool to value a company on the stockmarket is the P/E Ratio.

In the absence of earnings, a tool that can be used is the Price to Sales Ratio which is calculated as:

• P/S Ratio = Market Cap/ Yearly Sales

For the ASX200 that P/S Ratio sits on average at 2.32 which can be understood as the Market Cap being equal to 2.32 years of sales.

Our Sales for Q1 was $2.751m. If we assume the same amount of revenue for the remaining quarters we would have sales at :

• 2.751 x 4 = $11m

Our current market cap is $72.03m which would lead to a projected P/S Ratio of :

• 72.03/11 = 6.55

A bit high but within par of a speculative company


Expanding on this line of reasoning and bouncing off @Mayi vision of things we could evaluate the revenue required to obtain a P/E Ratio of 20 which is within par for a tech company:

• 72.03/20 = $3.6m of earnings
• This would equate to $0.9m of earnings/quarter

Assuming the same costs as for Q1, $3.31m, we would need $4.21m of revenue per quarter to reach our target. this would translate to $16.84m of yearly revenue.

To reach this figure, our Quarterly revenue needs to increase by 53% without increasing our costs!

We need to keep in mind that any increase in revenue will see an increase in direct costs though, but as said before the 4C is not the best tool to separate Direct Costs from Overhead Costs.