How to calculate/reconcile conflicting P/E ratios?
The user who wrote the Zerohedge item: The CBS article: The Quora estimate is similar to the Zerohedge one (estimated a round value of 1000 PE and a price of 70-80). Note that it was 30 days after the first 2 items you quoted. You used the CBS numbers except you used the zerohedge price.  It depends on which earnings were for each calculation. Past or future. The CBS numbers make the most sense because you can trace where they come from based on the links in their article.  CBS based their price on the estimates made the day before the stock went on sale. The price in the zerohedge item was based on the early trading numbers.
"To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings).  There are no ""per share"" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not.  In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares.  All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky." "You could not have two stocks both at $40, both with P/E 2, but one an EPS of $5 and the other $10.  EPS = Earnings Per Share P/E = Price per share/Earnings Per Share So, in your example, the stock with EPS of $5 has a P/E of 8, and the stock with an EPS of $10 has a P/E of 4.  So no, it's not valid way of looking at things, because your understanding of EPS and P/E is incorrect. Update: Ok, with that fixed, I think I understand your question better. This isn't a valid way of looking at P/E. You nailed one problem yourself at the end of the post: The tricky part is that you have to assume certain values remain   constant, I suppose But besides that, it still doesn't work. It seems to make sense in the context of investor psychology: if a stock is ""supposed to"" trade at a low P/E, like a utility, that it would stay at that low P/E, and thus a $1 worth of EPS increase would result in lower $$ price increase than a stock that was ""supposed to"" have a high P/E. And that would be true. But let's game it out: Scenario Say you have two stocks, ABC and XYZ. Both have $5 EPS. ABC is a utility, so it has a low P/E of 5, and thus trades at $25/share. XYZ is a high flying tech company, so it has a P/E of 10, thus trading at $50/share. If both companies increase their EPS by $1, to $6, and the P/Es remain the same, that means company ABC rises to $30, and company XYZ rises to $60. Hey! One went up $5, and the other $10, twice as much! That means XYZ was the better investment, right? Nope. You see, shares are not tokens, and you don't get an identical, arbitrary number of them. You make an investment, and that's in dollars. So, say you'd invested $1,000 in each. $1,000 in ABC buys you 40 shares. $1,000 in XYZ buys you 20 shares. Their EPS adds that buck, the shares rise to maintain P/E, and you have: ABC: $6 EPS at P/E 5 = $30/share. Position value = 40 shares x $30/share = $1,200 XYZ: $6 EPS at P/E 10 = $60/share. Position value = 20 shares x $60/share = $1,200 They both make you the exact same 20% profit. It makes sense when you think about it this way: a 20% increase in EPS is going to give you a 20% increase in price if the P/E is to remain constant. It doesn't matter what the dollar amount of the EPS or the share price is." "To perhaps better explain the ""why"" behind this rule of thumb, first think of what it means when the P/E ratio changes.  If the P/E ratio increases, then this means the stock has become more expensive (in relative terms)--for example, an increase in the price but no change in the earnings means you are now paying more for each cent of earnings than you previously were; or, a decrease in the earnings but no change in the price means you are now paying the same for less earnings. Keeping this in mind, consider what happens to the PE ratio when earnings increase (grow)-- if the price of the stock remains the same, then the stock has actually become relatively ""cheaper"", since you are now getting more earnings for the same price.  All else equal, we would not expect this to happen--instead, we would expect the price of the stock to increase as well proportionate to the earnings growth.  Therefore, a stock whose PE ratio is growing at a rate that is faster than its earnings are growing is becoming more expensive (the price paid per cent of earnings is increasing).  Similarly, a stock whose PE ratio is growing at a slower rate than its earnings is becoming cheaper (the price paid per cent of earnings is decreasing).  Finally, a stock whose P/E ratio is growing at the same rate as its earnings are growing is retaining the same relative valuation--even though the actual price of the stock may be increasing, you are paying the same amount for each cent of the underlying company's earnings." PE ratio is the current share price divided by the prior 4 quarters earnings per share. Any stock quote site will report it. You can also compute it yourself. All you need is an income statement and a current stock quote. This is a note from my broker, CMC Markets, who use Morningstar: Morningstar calculate the P/E Ratio using a weighted average of the most recent earnings and the projected earnings for the next year. This may result in a different P/E Ratio to those based solely on past earnings as reported on some sites and other publications. They show the P/E as being 9.93. So obviously past earnings would usually be used but you would need to check with your source which numbers they are using. Also, as BHP's results just came out yesterday it may take a while for the most recent financial details to be updated. You can add $262,500 worth of notes payable (assuming that you use the cash to buy inventory immediately). Any more and you would push the current ratio below 2. In case this ratio is the trouble, the formula for current ratio is current assets over current liabilities. Notes payable is a current liability and inventory is a current asset so you add the number to both of them. I used Excel to do this.  With this addition the quick ratio is 1.19. The formula for this is (current assets - inventory)/Current liabilities. So you take ($1,312,500 + $262,500 - $262,500 - $375,000)/($525,000 + $262,500) = 1.19 "For free, 5 years is somewhat available, and 10 years is available to a limited extent on money.msn.com. Some are calculated for you. Gurufocus is also a treasure trove of value statistics that do in fact reach back 10 years. From the Gurufocus site, the historical P/E can be calculated by dividing their figure for ""Earnings per Share"" by the share price at the time.  It looks like their EPS figure is split adjusted, so you'll have to use the split adjusted share price. ""Free cash"", defined in the comments as money held at the end of the year, can be found on the balance sheet as ""Cash, Cash Equivalents, Marketable Securities""; however, the more common term is ""free cash flow"", and its growth rate can be found at the top of the gurufocus financials page." You can create something like that by: You'll have to determine the PE ratio manually from the financial statements.  To get the PE ratio for each company, you can try the Edgar database, though I doubt it goes as far back as 1950. This blog has a graph of the DJIA PE ratio from 1929 - 2009. See this link...I was also looking an answer to the same questions. This site explains with an example  http://www.independent-stock-investing.com/PE-Ratio.html You can illustrate why expense ratio fees are in the numerator with an extreme example:  Let's say you have $100 in a mutual fund, their expense ratio is 50%, your nominal return is 900% and inflation is 900%.  Thus, without the expense, your investment would give you $100 in present value (because your return and inflation are identical), and $1000 in future value.  So with the expense ratio of 50% and no change in present value, you can reason that you would expect the expense ratio will eat half the present value.  If you apply your equation and include expenses in the numerator, you end up with:  ((100 - 100(.50))*(1+9))/(1+9) = $50 present value as you would expect  If you apply the manager's assumption that fees are applied external to inflation, then you end up with:  (100 * (1 + 9))/(1+9) - (100 * (1+9) * .50) = $-400 present value.  With this example you can see applying the fees externally acts as though they are charging you the fees on future returns today.  *Edit:  It's probably not worth fighting with someone senior to you over, as inflation rates are noisy estimates to begin with and the difference between these is typically not material to the decision being made; but pissing off someone senior by showing them their math is off will probably have a material impact on you. What you're referring to is the yield.  The issue with these sorts of calculations is that the dividend isn't guaranteed until it's declared.  It may have paid the quarterly dividend like clockwork for the last decade, that does not guarantee it will pay this quarter.   Regarding question number 2.  Yield is generally an after the fact calculation.  Dividends are paid out of current or retained earnings.  If the company becomes hot and the stock price doubles, but earnings are relatively similar, the dividend will not be doubled to maintain the prior yield; the yield will instead be halved because the dividend per share was made more expensive to attain due to the increased share price.   As for the calculation, obviously your yield will likely vary from the yield published on services like Google and Yahoo finance.  The variation is strictly based on the price you paid for the share.  Dividend per share is a declared amount.  Assuming a $10 share paying a quarterly dividend of $0.25 your yield is: Now figure that you paid $8.75 for the share. Now the way dividends are allocated to shareholders depends on dates published when the dividend is declared.  The day you purchase the share, the day your transaction clears etc are all vital to being paid a particular dividend.  Here's a link to the SEC with related information: https://www.sec.gov/answers/dividen.htm I suppose it goes without saying but, historical dividend payments should not be your sole evaluation criteria.  Personally, I would be extremely wary of a company paying a 40% dividend ($1 quarterly dividend on a $10 stock), it's very possible that in your example bar corp is a more sound investment. Additionally, this has really nothing to do with P/E (price/earnings) ratios. i will not calculate it for you but just calculate the discounted cash flow (by dividing with 1.1 / 1.1^2 / 1.1^3   ...)of each single exercise as stated and deduct the 12.000 of the above sum.  in the end compare which has the highest npv "Here is how I would approach that problem: 1) Find the average ratios of the competitors: 2) Find the earnings and book value per share of Hawaiian 3) Multiply the EPB and BVPS by the average ratios. Note that you get two very different numbers.  This illustrates why pricing from ratios is inexact.  How you use those answers to estimate a ""price"" is up to you.  You can take the higher of the two, the average, the P/E result since you have more data points, or whatever other method you feel you can justify.   There is no ""right"" answer since no one can accurately predict the future price of any stock." "Since doodle77 handled arbitrage, I'll take goodwill.  Goodwill is an accounting term that acts much like a ""plug"" account: you add/subtract to it the amount that makes everything balance.  In the case of goodwill, it generally only applies to mergers &amp; acquisitions.  The theory (and justification) is this: firms buy other firms at prices other than the market price (usually higher), and it is assumed that this is because the acquirer values its acquisition more than other people do.  But whether you use historical prices or market prices when you add (subtract) assets and liabilities to to (from) your balance sheet, this will never add up, because you paid more (less) than the assets are worth in the market, so more (less) cash flowed out than assets flowed in.  The difference goes into the goodwill account, so firms with a large goodwill account are ones that have made lots of acquisitions." Market price of a stock typically trades in a range of Price/Earnings Ratio (P/E ratio). Or in other words, price of a stock = Earnings * P/E ratio Because of this direct proportionality of stock price with earnings, stock prices move in tandem with earnings.