The Observer on money

They never do quite seem to get it:

and Tesla’s value neared 27.2 times its earnings, according to Bloomberg. For comparison, General Motors trades at a multiple of 2.6 and Ford at 2.3.

Don’t think so. Revenues perhaps, but not earnings. Ford had sales of $160 billion perhaps, with a market cap of $40 billion.

Sure, we can mutter that earnings is what is earned and thus is indeed revenue but that’s not how the words are used in matters financial, is it?

And the idea that a car company should be at 27 times revenues……

12 comments on “The Observer on money

  1. The only reason for valuing a company 27 times revenue is that you think it will expand rapidly and come to dominate a new market. Like Amazon, or Google… or the South Sea Company of 1711…

  2. It’s quite odd in many ways, not least the fact that Tesla makes losses, so it has negative earnings per share and therefore a negative PE

  3. Tesla’s market cap is $92bn. Its turnover was $21bn in 2018 so a ratio of about 4. You would expect 2019 turnover to be higher, therefore an even lower multiple of revenue but nothing about Tesla is easily predictable

  4. Dodgy Geezer,

    You’d think people would look at the sales figures. If you’ve got a huge P/E, sales should be rising, you should be struggling to keep up with growth. They can talk up China, but the same thing is going to apply. There’s Musk fanboys who are queueing up with wads of cash, but it isn’t going mainstream.

  5. “that’s not how the words are used in matters financial, is it?”

    I have perhaps been too dismissive of accountancy as a mere matter of bookkeeping and tax-dodging. I’d overlooked the necessity of remembering that words don’t mean what they say.

  6. Diogenes

    +1.

    I noticed that on the Ford numbers. Irrespective of the terminology (even American v English), it’s difficult to see where they get any of the numbers from.

  7. According to Wikipedia (so it must be true?), P/E ratio only applies to shares. It has nothing directly to do with revenue, profits or any other company data.

    What is the market price of a publicly traded company share? What was the dividend (earnings) on that share (expressed in the same monetary unit) at the last distribution of dividend? Divide and that’s your P/E.

    The only thing I’m not sure about is whether it’s annual dividends or dividends per distribution (usually 2 per annum).

    I hope this helps. ScottR

    PS Second attempt for posting too quickly. Last time was 10ish days ago?
    Third attempt.

  8. Scott R…earnings = post-tax profits. If you divide by the number of shares in issue, you get EPS earnings per share. If you compare this to the share price you get the PE = price-earnings ratio.

    You are giving the formula for the dividend yield

  9. Thanks Michael but of course they chose the wrong measure of profit – ebitda. Even if they chose EBIT, I reckon Tesla comes out at a negative figure

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