As I write this post the S&P 500 is priced at 1,310. By my calculations I have current earnings at $91.4 for an S&P 500 P/E Ratio of 14.3. The earnings I use are as Reported Earnings, as opposed to the much more ambitious Operating Earnings, as I believe these are a much more appropriate (and conservative) measure. As a quick reminder Reported Earnings will typically always be lower than Operating Earnings as they include the cost of non-recurring items such litigation charges, costs of shutting a factory and good will write downs to name but three. Now it’s only my humble opinion, but I believe these are real and true costs incurred by the business, even if they are non-recurring and so badly want to be excluded by the “Company Bean Counters”.
Let me also be clear on how I calculate the Reported Earnings. I am using the Earnings as published by Standard and Poors. At the time of writing they have published:
- Actuals for quarter end 30 June 2011, 30 September 2011 and 31 December 2011;
- A hybrid of 98.7% actual with the remaining as estimates for quarter end 31 March 2012; and
- An estimate for quarter end 30 June 2012
I then extrapolate these figures to cover a year to the end of May 2012.