Price/Sales Ratio is a measure of the  number of years to recover the stock price with zero sales growth.

“Revenue recognition tops the list of creative accounting techniques employed by many dot-coms. The decision to capitalize or expense is inextricably intertwined with this point. A company defers as many costs as possible. Capitalized costs are reported as an asset on the balance sheet rather than an expense on the profit-and-loss statement. Never before has an entire industry had sales matter so much to its lenders and investors.  For a website trading at 200 times expected sales, even a small increase in reported revenues can translate into a dramatic increase in market capitalization. Here are a few examples of how it can be done:

The gross-up. Many dot-coms gross up revenues by reporting the entire price a customer pays at their site even though the company may actually keep only a small percentage of that total amount.

Contra deals or barter. This method involves booking revenue ahead of when the sale actually occurs. A dot-com exchanges advertising space on its website for advertising space on another to build brand recognition and use up excess advertising capacity without using cash. GAAP requires recording barter transactions at fair value, but does not specify how to determine fair value. Many dot-coms have treated such barter advertising deals as a sale, thereby accelerating revenue as well as expenses.

Expenses. Dot-coms often manipulate the categorization of expenses in an effort to report a more favorable operating performance. Because dot-coms rarely report net profits, the focus is on gross profits before the deduction of indirect expenses. Dot-coms try to minimize direct expenses by reclassifying them as indirect. The primary area for abuse is coupons or discount vouchers, which are reported as indirect expenses. By reducing direct expenses while increasing indirect expenses, the company breaks even at the gross profit level even though net losses are the same. Additionally, fulfillment costs, the expenses associated with warehousing, packaging, and shipping products, are used in creative accounting.  Companies usually record fulfillment costs as a cost of sales, but dot-coms classify fulfillment costs as a marketing expense. This categorization allows dot-coms to conceal operational expenses within the hefty marketing costs that lenders or investors likely believe are associated with establishing brand awareness.

Once these creative accounting techniques are combined, the profit picture looks more promising. When dot-coms have crashed, the creative accounting employed in an effort to enhance financial performance has often been placed in the lap of the outside accountant or auditor to explain and justify.”