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S&P 500 PE ratio: how to do the calculation

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October 09, 2009 – Comments (1)

I saw some really screwy numbers in the press, and some even screwier stories based on these numbers. I spent some time on the official S&P website. Not only did I discover the real story behind the nos., I found out that many financial reporters do not do their homework (surprise, surprise).

There are 2 different PE ratios that S&P reports.

I hope that all you Fools do your due diligence before investing, and know that there are TWO different earnings reported on the 10K: one is from operating, and the other is the official, total number which includes one-time and extraordinary items. So, the PE ratio reported in the press is the latter. Fools should understand that the former is more indicative of a company's financial health. Besides, it makes comparisons easier.

One PE ratio is based on as reported earnings, and the other is based on operational earnings.
when you go to
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_500/2,3,2,2,0,0,0,0,0,0,5,0,0,0,0,0.html
you  can download 2 different Excel spreadsheets. The historical one is the one usually quoted by reporters, but the "estimates" one is more interesting. It has 2 different columns for the S&P 500 composite PE ratio. The one based on "as reported" goes back clear to the late 1930's. I would argue that the one based just on operational earnings is more valuable, even if the data does not go back as far.

The PE ratio on "as reported" earnings is some ridiculous thing 100+, the one based on operational earnings is a more reasonable 27 for 3Q. I hope that Fools that understand the difference.

 

 

1 Comments – Post Your Own

#1) On October 09, 2009 at 11:54 PM, binve (< 20) wrote:

I wrote a post on this not too long ago, you might find it interesting: http://marketthoughtsandanalysis.blogspot.com/2009/10/sentiment-pe-bpspx-vix-and-cpc.html

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