Question about calculating P/E
Hi, I have a quick question about calculating FY23 trading multiple(P/E ratio) of a company(fiscal year ends at Dec 31st).
Let’s just assume P/E is simply calculated ‘Market Cap / Net Income’, FY23 full year results came out on Feb 28th 2024 and today is March 1st 2024.
Which of the following do you think is more often used when you are calculating P/E?
- market cap(as of Dec 31st 2023) / Net Income(2023 full year)
- market cap(as of Feb 28th 2024) / Net Income(2023 full year)
Current Market Capitalization divided by Latest Filing’s Net Income.
Mkt. cap. / NTM net income is the most relevant
Always use today/latest market cap over any period of choice. It’s a “current valuation” and relative to current value other comps trade concerning the respective period’s earnings
Correct
Thank you for the answer!
Then I have another question. What if today is like Dec 31st 2024 and I need to calculate P/E ratio as of Dec 31st 2023?
It would still be current market cap / fy23 net income. You can calculate P/E as of a certain date using market cap on that day’s close, but you would call that out as it is typically assumed when you see a P/E multiple, it is using the latest market cap with whatever period’s net income.
This is why you can make a P/E multiple over time chart per the course of the year, so you can see how market cap has affected the P/E multiple for FY23 for example
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