J.T., it depends on whom you want to believe. If you want to believe in the fairy-tale pro forma earnings of the Wall St cheerleaders then by all means do so.
But if you want to rely on REAL earnings-- "S&P recently announced they intended to start reporting earnings using new standards which dealt with options and pension liabilities, in advance of it being adopted by the accounting industry. Recently they released their study of earnings for the S&P 500 for the four quarters ending in June, 2002. Instead of the $44.93 that Thomson First Call reported, S&P said actual reported earnings were $26.74 a share.
Earnings are $26.74, that is, until S&P deducts option expenses and pension liabilities from the companies in their own index, and then earnings drop to $18.48 a share. This is a Price to Earnings (P/E) ratio of 48.6 on the S&P 500, as of the close on Oct 25th.
As for NASDAQ, a study done last summer of the 15 largest companies on the NASDAQ, which represented at that time about 37% of the NASDAQ market value, showed total 2001 pro forma earnings added up to $25 billion. Real earnings were about half, or $13 billion. But total option expenses for the 15 firms were $12.5 billion. That means pro forma income was cut in half, and real, Honest-to-Pete profits were a mere $423 million, give or take a few million.
These 15 firms had a total market cap of roughly $750 billion (the total value of their stock). That means the combined P/E ratio based upon 2001 earnings which deduct option expenses, and using their stock price today, is a little north of 1,789!
If you take away Microsoft, the combined earnings of the remaining 14 is a NEGATIVE $3.5 billion. That means 14 of the largest NASDAQ firms could not combine to make a profit, if you deduct the expense of their options. Seven of these firms had negative earnings once options were deducted. |
