The Value/Revenue Ratio: A Semi-Long-Wave Marketing/Accounting Metric

Abstract

This paper investigates the performance of a metric that links two measures of critical importance in marketing and accounting. This metric is the market value/sales revenue ratio. We discover several surprising insights when this measure is applied to U.S. markets. First, the long run expected value of the ratio is one, which implies that both capital and product markets in the U.S. are efficient. Second, the time series behaviour of this metric may best be described as a semi-long-wave. It is not just a simple reflection of the movement in stock prices. Third, the VR ratio appears to qualify as a new economic indicator and structural industry variable that yields additional information about how stock and product markets interact. For these reasons, it appears to be a simple yet powerful example of marketing/accounting synergy.

Keywords: Market value, sales revenue, product markets, stock markets, economic indicator, structural variables

JEL Classification: D21,D24,E22,E32,E44,E62,G44,L16,L21,M21,M30,M40