Finance: What are trailing earnings?

What are trailing earnings? Hit play to find out.

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Transcript

00:28

and tons of nervous Nellie investors are pulling out their hair over the very [Hair falls on floor]

00:33

high multiple that this stock is trading at so the trailing earnings of whatever

00:38

dot-com were well let's just add him up here in 23 32 41 52 totals a buck 48 [Share prices appear]

00:44

that's a dollar forty eight in trailing earnings so the years trailing earnings

00:50

of the company were a buck 48 and that means that at $100 a share with no cash

00:57

and no net debt to worry about here the company is trading at a hundred divided

01:01

by a dollar forty eight or about sixty seven times earnings there's nothing

01:06

funky going on in the balance sheet here whatever dot-com has a little bit of [Man holding a balance sheet]

01:09

cold cash and no debt so 67 times trailing earnings here is a huge

01:15

multiple it's a multiple of trailing earnings but look at the trend in

01:20

earnings growth the company has stated that it thinks it'll keep growing at [Growth percentage bar chart appears]

01:23

quote about this pace for the foreseeable future

01:27

unquote so if we do a little estimating then forward earnings might see them

01:31

print something like go I don't know 64 cents then 80 cents and 95 cents and a

01:37

buck 12 or something like that well if we add up those subsequent forward [Quarterly earnings appear]

01:41

quarterly earnings numbers we get $3 and 51 cents a share in earnings so wait a

01:47

minute we just came to the conclusion with the nervous Nellie's that this [Stop sign appears]

01:51

stock was so expensive when they were thinking about it as a hundred times

01:55

earning stock but on the projected forward earnings of 3.51 a share not a

01:59

hundred bucks it's trading at 100 divided by three point five one or about

02:02

twenty eight times earnings just a tad more than while say Bank of America or [Logos appear]

02:07

caterpillar Tractor or coca-cola but whatever dot-com is growing earnings at

02:12

like ten times faster pace than those old stalwart

02:15

companies they're a lot more risk that whatever dot-com misses its earnings

02:20

numbers yes absolutely but if it hits the 3.51 and then goes on to earn oh no

02:24

six bucks and then ten bucks a share in the subsequent years well the hundred [Whatever.com share price on graph]

02:28

dollars a share price here will look like a bargain in the rearview mirror so

02:32

that's what trailing earnings are all about you pick a spot in time and look [Calendar appears]

02:36

at the previous and I'll say four quarters earnings and then you think

02:40

about what multiple of that number of the stock is trading at and then map

02:44

that to future prognostications if the company is really growing this fast well [Whatever.com tree appears]

02:48

then even though it's multiple on trailing earnings might be high while on

02:52

forward earnings it might be low may be a bargain

02:55

just ask Amazon about this one they wrote the book on the trailing earnings [Amazon graph of stock price]

02:59

and guess where you can buy that book