P/E Calculation

mgarl10024

Hi,

Bit of basic advice here as I am new to investment and am learning as I go.

This article: http://www.investopedia.com/university/value-investing/value-investing3.asp explains that P/E, the price to earnings ratio, is simply price divided by earnings.

So, if we take the Experian shares (EXPN) as an example.
In July 2013, they paid out 24cents, and in Jan 2014 paid out 11.5cents per share.
Working on a figure of $1.66 to £1, gives (24+11.5)/1.66=£0.2139p per share.

The price is currently £10.81.
So, P/E = £10.81/£0.2139 = 50.54.

But,
http://shares.telegraph.co.uk/quote/?epic=EXPN says 29.14
http://www.bloomberg.com/quote/EXPN:LN says 26.8662
http://www.marketwatch.com/investing/stock/expn says 0.22
http://www.macroaxis.com/invest/compare/EXPN.L says 10.46 times
http://uk.advfn.com/exchanges/LSE/experian-EXPN/share-price says 48.4

These figures are all wildly different, and ignoring that the share price and exchange rate has moved around a bit, only the last one is even close to my calculation.

What's going on here? What am I missing?

Thanks,

Reaper

Your concept of P/E is incorrect.

Earnings has nothing to do with dividends. Earnings means how much money the company is making per share. Whether they choose to pay some of that out in the form of dividends is a separate issue. That is compared to market price per share.

What you are looking at is called "Dividend Yield".

Yes the PE figures do vary between sites. Some are just plain wrong but without looking I am guessing a possible reason is some are using historical data (trailing PE) and some future estimates (forward PE).

P.S. I tend to use Digital Look for my info. They show both the P/E and dividend yield year by year. Click on "Income & Efficiency" tab on this page to see them.
http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?username=&ac=&csi=198513

princeofpounds

yes. Look up 'dividend payout ratio' to understand the difference between earnings and dividends.

mgarl10024

Thank you Reaper and princeofpounds. I guess I read "earnings" and thought of myself rather than the company.

Freecall

Also look up 'Dividend Cover' as this references both of these measures and gives an indication of how reliable the dividend payment might be going forward.