Reconciling P/E Ratios Across Currencies and Earnings Measures
Summary
The document investigates why the reported price-to-earnings ratio for a Singapore-listed company appears inconsistent with a calculation using its market capitalization and income statement. The accepted explanation is a currency mismatch: the market capitalization is denominated in Singapore dollars, while the earnings figure is in Thai baht. Comparing the two without converting them produces a misleading ratio.
A second answer notes other common P/E adjustments. Earnings available to common shareholders may differ from net income if preferred dividends must be deducted, and diluted earnings per share can reflect securities that may convert into shares. These factors affect the earnings figure used in a P/E calculation. The discussion is an example of checking units and the definition of earnings before interpreting valuation data; it does not offer a general data-source reconciliation procedure or analyze the company’s valuation further.
Key ideas
- Market capitalization and earnings must be expressed in the same currency before calculating P/E.
- Preferred dividends can reduce earnings attributable to common shareholders.
- Diluted earnings per share accounts for securities that may become common shares.
- Check both currency units and the earnings definition when reconciling reported valuation ratios.
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# How to correctly calculate P/E ratio of Singapore stocks? # How to correctly calculate P/E ratio of Singapore stocks? I'm calculating the P/E ratio of some International stocks and found a problem. Please look at this paticular stock:Thai Beverage Public Company Limited The p/e calculated by yahoo finance is 31.33. Similar results can be found at google finance and bloomberg which are all over 20. But if you look at income statement of this company, the net income is 25,226,000 thousands ~ 25 billions, and the market cap is 23.6 billion, which suggests p/e less than 1 (0.94)! And I believe the net income data is correct on yahoo finance, because I have cross validated it with compustats global data. Am I missing something here? Why the discrenpency? Thank you! ## Answer by Hao (score 4, accepted) https://quant.stackexchange.com/a/33073 Just figured it out with the help from someone else... The market cap is in Singapore dollar because it's traded on Singapore exchange, but their income statement is in Thai Baht... That's why :) ## Answer by John (score 0) https://quant.stackexchange.com/a/33072 There are two things I could think of. First, when a stock has preferred shares, you have to subtract out the dividends to preferred share to get earnings available to common stockholders. I don't think Thai Beverage has preferred stock, but you should be able to check that on Bloomberg. If they are, then this would reduce earnings per share and increase the P/E. The other correction is account for dilution in earnings per share. Diluted earnings per share takes into account the ability of some securities to convert into common stock. Some examples of these are convertible bonds, options, or preferred stock. If they are converted to common stock, then there will be more shares and thus less earnings per share, which would mean a higher P/E.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.