From Schweser: “Negative earnings render P/E ratios meaningless. In such cases, it is common to use normalized EPS and/or restate the raio as the earnings yield (E/P) because price is never negative.” This confuses me. If P/E is negative, that means that E is negative. By taking the inverse of the P/E ratio to get E/P, you still have a negative number for the fraction since E is still negative. So how does this solve anything? Are they saying that part of the process to convert from P/E to E/P is to first normalize EPS to get it nonnegative, and then take the inverse, which would make the E/P positive? That makes sense accept if you do that then you can make the P/E positive too–you don’t need the E/P.
man, you ask alot of questions.
true and these questions are very technical. Just take it as it comes…don’t think too much about it. We are not recommending any stock by doing any due diligence onn B/S. BTW, what do you do?
E/P usually E is less than P. E/P a negative number closer to 0 is the higher number. So take the higher number and work off of that. (I remember if you now rank the E/P from Highest to the Lowest -> your order will be fine). Consider this set Stocks->A,B,C,D P-> 10,20,50,5 E-> 4,-5,-2,1 P/E meaningless E/P->0.4, -4, -25, 5 Order by E/P (Hi to Lo) -> D, A, B, C – Now securities are ranked correctly in order from cheapest to highest in terms of the currency of earnings.
thanks cpk, makes sense
cfaboston28 Wrote: ------------------------------------------------------- > true and these questions are very technical. Just > take it as it comes…don’t think too much about > it. We are not recommending any stock by doing any > due diligence onn B/S. > > BTW, what do you do? good advice, ill consider that when posting further questions. i do advisory/consulting work at a big 4.