Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1
Sorry if I'm so dimwitted on this, but it sounds like you are using the 2000 option cost as a proxy for the cost in 2001. Is this a fair statement?

Well, it depends. If you are one who likes to use trailing P/Es for some reason or another, then you are not necessarily using it as a proxy for 2001 earnings, but for the whatever reason you're using 2000 earnings in the first place (perhaps as a proxy for perpetual, normalized earnings). If you were doing a DCF or a forward P/E, you'd be using the previous year's numbers as a baseline (rather than a proxy) for predicting the future number.

fwiw - I use ev/e in my main spreadsheet but do it because 1) I already know it double counts the earnings and 2) because the next quarter will include more interest.

I am not on board with reason #2. I don't think the fact that interest will increase makes EV/E a helpful metric. EV/E will double count interest costs or benefits, and cause problems in valuing companies with significant cash or debt. Here's a prior post on my opinion:

By the way, WEB's 1/3 x strike price x number of options is a proxy for figure the annual option cost, right? Not a cumulative cost?

Right (annual).
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.