Commonly reported price earnings ratios are incorrect

The most important misreporting by the financial newsmedia relates to the S & P 500 index.  Here is some analysis from a site named Generational Dynamics:

“Let’s take a look at the latest figures from the official Standard & Poors spreadsheet:

                 Estimated Price/Earnings ratios based on
    Period     Operating Earnings         "As reported" earnings
    -------    ------------------         ----------------------
    Q4 2010        11.21                           24.07
    Q3 2010        11.77                           24.58
    Q2 2010        12.36                           25.38
    Q1 2010        13.17                           27.57
    Q4 2009        14.11                           29.82
    Q3 2009        19.73                         -464.52
    Q2 2009        19.95                         1932.00
    Q1 2009        18.82                          127.64

As I wrote last month, “operating earnings” is essentially a meaningless figure, supposedly equal to earnings, but not counting so-called one-time expenses. Since writing down toxic assets is a “one-time expense,” the tens of trillions of dollars in losses from toxic assets are being ignored in “operating earnings,” although their fraudulent nominal value was of course included with “earnings” during the credit bubble.   The only valid values for P/E ratios are based on “as reported” earnings — that is earnings that public corporations report every quarter, following very strict accounting rules.   The figures 127.64, 1932.00 and -462.52 look like errors, but they’re not. They’re based on the previous year’s earnings (“12 month trailing earnings”). Earnings turned negative in Q4, so they’re small but still positive for the entire past year. By Q3 of this year, it’s estimated that earnings for the trailing year will be negative, so the P/E ratio turns negative.”

When earnings are zero or negative, the price/earnings ratio is meaningless.  If you look at the NYSE closing price list that is published by the WSJ each day, you will see that for companies with negative earnings the column for P/E ratios contains a dash, indicating that the calculation is not meaningful.

Different arms of the same media company don’t even publish the same ratio:

“i wrote to the wsj about their BS pe numbers.

they replied that they are using operating earnings pe but just for sp500. however, they do not mention operating earnings pe anywhere on their page with the birinyi data.

their letter is at my web page

http://blog.screaminghighway.com/2009/05/text/sp-500-pe-shenanigans/

funny thing is barron’s has it as 122.45. wsj owns barron’s.

http://online.barrons.com/public/page/9_0210-indexespeyields.html”

The Screaming Highway site is definitely worth a look.

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2 Comments »

  1. foto95 said

    могу прготовоить интервью с создателем блога, прошу написать мне в один изадресов на домашней страничке, уж слишком завлекательные фото получаются

  2. Привет! Почитай выше блог про бетонные работы, почему нужно уважать их , этих трудяг которые пашут и не жалеют себя , выпекая применительно 10 часов в сутки без остановки, респект им!

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