because i always think that trailing is in the past and leading is in the future, so from TVM we know that we need to multiply by (1+g) to go from past to future. so initually, i go : leading-PE = trailing-PE * (1+g) but the truth is, leading-PE * (1+g) = trailing-PE does anybody have the same problem getting over this or is it just me?
yes…I used to too! but having gotten it wrong several times…i now know that it’s not intuitive by just thinking of trailing *(1+g) = Leading…it’s actually the other way around!
Just think of it only the earnings growing at g while holding p constant
That used to trip me up but the way the professor on the Schweser video explained it made the most sense to me. To get leading P/E1 you are multiplying the E by (1+g) to get to the E1. Then in the numerator on the other side of the equation you are also multiplying by (1+g). The (1+g)'s cancel out. On trailing P/E0, you aren’t multiplying the lefthand E by anything, therefore this time it won’t cancel and will still be in the numerator of the other side of the equation. Hope this helps!
Leading PE should always be less than trailing PE (assuming positive growth), since future growth has already been factored into the price.