distributions themselvesare volatileand changeover time.
Equitymultiplesarenoexceptiontothisgeneralrule.Inthis
section,we examinethedistributionsof somewidely used
equity multiples.
Price-Earnings Ratio
Theprice-earningsratioistheratioofthemarketvalue of
equity to the earnings generated for equity investors:
Whileitisconventionallycomputed usingthecurrentprice
pricepershareanddilutedearningspershare,thealternative
measuresofmarketequity—aggregatevalueofequity,equity
netofcash,andoption-augmentedequity—canbeusedwith
theconsistentmeasureofearnings(seeTable8.1).Figure8.1
presents the distribution of P/E ratios for U.S. stocks in
January2006.ThecurrentP/E,trailingP/E,andforwardP/E
ratios are all shown in this figure.
FIGURE 8.1P/E Ratios—U.S. Stocks in January 2006