How to calculate average PE?

CFA General
#1

I would like to know the average PE for a company over the years of 2005-2007, and also the average PE for each individual year. Is there a standardized and simple method of doing this calculation? Here’s what I’ve done so far: I downloaded all the prices for a year (say 2007), and then I simply divide the average 2007 price by the 2007 EPS. But this doesn’t seem right, for a number of reasons. Most notably, the price on 12/20/07 doesn’t really relate to 2007Q4 earnings–it would relate to 2006Q4-2007Q3 earnings, plus any guidance or other earnings announcements the company has given for 2007Q4. However, calculating it this way would be quite time-consuming. Is there an industry standard for this calculation? Helpo!

#2

Do you really need better data than (begin PE + end PE)/2?

#3

I read the post twice and am still confused…

#4

naturallight Wrote: ------------------------------------------------------- > I would like to know the average PE for a company > over the years of 2005-2007, and also the average > PE for each individual year. Is there a > standardized and simple method of doing this > calculation? > > Here’s what I’ve done so far: I downloaded all the > prices for a year (say 2007), and then I simply > divide the average 2007 price by the 2007 EPS. > > But this doesn’t seem right, for a number of > reasons. Most notably, the price on 12/20/07 > doesn’t really relate to 2007Q4 earnings–it would > relate to 2006Q4-2007Q3 earnings, plus any > guidance or other earnings announcements the > company has given for 2007Q4. However, calculating > it this way would be quite time-consuming. > > Is there an industry standard for this > calculation? Helpo! obviously that isn’t right. what you need to do is divide each individual price by the trailing twelve month EPS at that time (if you are doing trailing P/E multiples). if you want to do fwd P/E it’s a bit trickier. you’re going to need a dataset the historical twelve month fwd EPS estimate. i’m pretty sure you can do it through factset or bloomberg but it’s a real pain. i think thomson has historical forward P/E for some of the higher level subscriptions…

#5

I just sign into Capital IQ and look it up? Am I missing something also? Willy

#6

It’s not that simple. You have to adjust for reinvested dividends and damfagsturbation.

#7

I was thinking about this (or sort of this) just the other day. The problem is that you are comparing a daily variable with one which varies only 4 times a year (if you are using quarterly earnings). Plus the earnings figures you are using are announced after the share price has already adjusted to reflect future beliefs regarding the upcoming earnings figures. I would say, split the year into 4 quarters, then on each tradining day calculate the PE ratio based on the previous quarters earnings figures and then simply average them over the entire year. It’s a fairly meaningless figure though, really.

#8

on boomberg IBM {Equity} GE

#9

virginCFAhooker Wrote: ------------------------------------------------------- > It’s not that simple. You have to adjust for > reinvested dividends and damfagsturbation. why do you have to adjust for reinvested dividends?

#10

What company? I can look it up on bloomberg for u.

#11

Thanks chintz! The company is ABB. If possible, can you find it per year for 2003, 2004, 2005, 2006, 2007? Whatever you have would be great. Thanks for all the responses!

#12

ABB Ltd. current pe: 19.30 Averages - based on daily values 2003: 31.47 2004: 61.46 2005: 25.80 2006: 24.91 2007: 24.69

#13

Thanks!