S&P 500 Earnings: Are They Understated? – Morgan Stanley

¹ Frank J. Fabozzi, Sergio M. Focardi, and Caroline Jonas, “Equity Valuation: Science, Art, or Craft?” CFA Institute Research Foundation, 2017.

² Price-to-earnings ratio (P/E) is the price of a stock divided by its earnings per share for the past 12 months. Sometimes called the multiple, P/E gives investors an idea of how much they are paying for a company’s earning power. The higher the P/E, the more investors are paying, and therefore the more earnings growth they are expecting.

³ Enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA) is enterprise value (EV) divided by earnings before interest, taxes, depreciation and amortization (EBITDA). It is commonly used as a valuation metric to compare the relative value of different businesses. Enterprise value measures the market value of a company. It is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

⁴ Feng Gu and Baruch Lev, “How to Distinguish Between GAAP Losers and Real Losers,” Lev End of Accounting Blog, February 6, 2020 and Masako Darrough and Jianming Ye, “Valuation of Loss Firms in a Knowledge-Based Economy,” Review of Accounting Studies, Vol. 12, No. 1, March 2007, 61-93.

⁵ Counterpoint Global estimates for calendar year 2021.

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