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Trailing PE vs Forward PE Ratio | Definition | Formula (with Examples) - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of WallStreetmojo friends will be able
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to learn a topic a concept that is on
trailing PE was his forward B so what
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exactly is trailing PE what exactly is
the forward be that's what we are going
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to discuss over here we'll start with
the trailing PV okay now trailing PE is
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where we use the historical earnings
remember one thing historical earning
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per share in the denominator so you can
say EPS and trailing PE ratio this
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basically the formula you know it's
something said sort of it's like this is
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equal to its price per share divided by
the EPS over the previous 12 months okay
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so let's take one trailing PE example
and understand let's calculate the
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trailing PE of Amazon see Amazon
current share price Amazon current share
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price that is p0 is 1586.51 as on this is as on 20th march 2018
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okay now let's say the
earning per share faster one year okay
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based on various quarters and all
let's say the EPS TTM it is known as for
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trailing PE is a let's say $4.576 okay so in that scenario
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what is going to be a trailing PE because
this EPS is for your 12 months okay so
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it's p 0 divided by your EPS that will
give you 346.7X
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and now that is a PE DDM so this is
your trailing PE now the next thing
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that we are going to discuss is the
forward what is the forward PE ratio so
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the forward PE ratio is basically the
price per share divided by the
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forecasted it is a price per share
divided by the forecasted EPS right
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let's take another example for forward
would be let's say the same current
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price is 1586.51 and let's
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say the EPS for the December 2018 and
year ending December 19 is eight point
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$8.31 and $15.39 so the forward PE ratio for 2018 is
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going to be your price divided by
December 2018 the EPS that is a forward
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PE and in case of December 19 it's going
to be 103.08X
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so what exactly is the difference
between the trailing
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and the forward
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PE and over here we'll write as the
forward PE so as you can you know note
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that you know the key difference between
the two is the EPS that has been used
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now for trailing PE for trailing PE we use
the historical EPS what do we use
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historical EPS whereas for the for T we
use the EPS that has been forecasted
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right now trailing PE versus forward PE
example that we are going to take C
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trailing theory uses the historical EPS
while the forward PE uses the
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forecaster EPS let's look at another
example to calculate the trailing verses
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forward PE now there's this company
called AAA which has the 12 months
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EPS offer $10 ten and its current
market price that is p0 is a $234 so the
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trailing 12 months EPS is going to be
$234 price divided by earnings that's
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23.4X likewise let's
calculate the forward PE returning of
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AAA company a company is AAA
2016 let's say estimate estimated EPS is
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let's say $11 and the current price p0
is $234 so the forward PE earning ratio
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the forward PE ratio formula is going
to be $234 divided by the
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share price
that will give you 21.3 X now what are
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the important points that one needs to
note while in interpreting or
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calculating trading versus forward PE
ratio see some of the things that you
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need to consider regarding trailing PE
ratio versus forward PE ratio is that
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you know if the EPS is expected to grow
okay then the forward PE ratio will be
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lower than the historical or the
trailing PE you can say or the trailing
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PE ratio now from the example that we
learned you know there is an increase in
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the EPS and you know hence the forward
PE ratio is lower than the trailing PE
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ratio second on the other hand if the
EPS is expected to decrease then you
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will note that the forward PE ratio
okay will be higher or greater than the
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trailing PE ratio now you need to note
that the forward PE only forecast the
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forward PE only forecast the EPS of 2016
or maybe no 2017 whereas the stock price
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will reflect the earning per
earning growth prospects for in I mean
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far into the future state but that's one
big thing that you need to consider
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fourth one should not only compare the
trailing ratio trailing ratio for the
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valuation comparison between the two
companies but also look at the forward
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PE also forward PE ratio or two to
focus on the relative value whether the
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PE difference reflects the company's long
term growth prospects and the financial
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stability
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