Hello,
I?m working on a project, and I need an accurate and precise answer
A.S.A.P. This may be an easy question for someone familiar with Robert
J. Shiller?s work.
Yale Professor and economist Robert J. Shiller keeps a table of stock
market statistics on Yale economics? site in an Excel format located
at http://aida.econ.yale.edu/~shiller/data/ie_data.xls . The table is
supposed to be an updated version of the data used in Irrational
Exuberance (2000); let?s assume that it is.
I understand that Shiller uses an inflation adjusted 10 year moving
average to calculate his version of trailing P/E ratios; that is NOT
what this question is about.
This question is about calculating P/E ratios for the trailing 12
months in the more traditional sense, based on Shiller's data in the
table mentioned above.
I am not a pro or an expert in economics / investing.
My question is about June 2004?s dividend and earnings as per this
table, located at cells C/1610 & D1610.
This is where my confusion lies:
Is the $18.60 dividend included in the $56.15 earnings?
If so than I assume the correct and most common/traditional method to
calculate the P/E ratio is 1132.76/56.15 = 20.1738201 P/E ratio. Is
that correct?
If the dividend is not included in the earnings (I don?t think this is
the case), than what I guess I have to do is add the dividend to the
earnings and calculate like this: 1132.76/(56.15 + 18.60) =
15.1539799. I think this is wrong. Is this right or wrong?
If I made an error in both cases, show me the correct way to calculate
trailing 12 months P/E ratios in a traditional sense based on trailing
12 months earnings as shown in Shiller?s table referred to above. 
Request for Question Clarification by
jugglerga
on
29 Nov 2005 23:32 PST
Hi,
As an economics major, I feel like I can help you here, but I just
want to be sure we're on the same page here.
First of all, dividends are not used in a calculating price/earnings
ratios. Dividends are irrelevant to the p/e ratio.
It's not exactly accurate, though, to say that dividends are
"included" in earnings. It's usually true that companies pay
dividends from their earnings (e.g., the company might earn $1 per
share and pay out 50 cents as a dividend). Dividends are often a
subset of earnings, but they don't have to be. Sometimes companies
pay out dividends that exceed their earnings. For example, a company
might earn 10 cents per share but pay out a 50 cent dividend
(obviously using cash reserves rather than earnings to fund the
dividend).
Is this helping?

Clarification of Question by
johnjri1ga
on
30 Nov 2005 00:19 PST
Hello Juggler, I appreciate your fast response to my question. I like
to think where moving towards my precise answer. I understand your
point that a company that makes $1.00 a in earnings might pay 0.50 or
1.50 in dividends;that explains that perfectly. If the market price is
$20, and the prior 12 months earnings are $1.00, then the trailing P/E
is 20; again the dividends are irrelevent. Perfect explanation.
I think what through me for a loop is the fact that Shiller's methods
are so unusual (for what I'll call 'Shiller's Ratio'), that I thought
perhaps he may have done something very nontraditional with the
earnings he listed in column "D". Are you familiar enough with
Shiller's methods to say he didn't do anything nontradition/weird
with the 'earnings' column in this row? For example if $56.15 in
earnings is aproximately $18.60 different than what most agree the
earnings for the S&P 500 is for June 2004, than I would be extremely
worried about basing my research on it.
If your familiar enough with Shiller's methods to tell me that he
absolutely did not do anything unusual in this column like add
dividends or whatever, than proceed and answer the question.
OR
If you can assure me he did not do anything weird/unusual with the
earnings for June 2004, because the numbers jive with Standard and
Poors or another respected source, than roceed and answer the
question.
I apreciate your request for clarification, I really need this worked
out before I can proceed. I hope you have the information to give me
an precise answer.
Thanks
