P/E ratio

[aparoid89]

When calculating the P/E ratio of an index:

1. Is the p/e ratio for each individual stock weighted giving the largest stocks the highest weighting?

2. What about negative p/e ratios?

3 How are outliers handled? Let's say a company just scraped a profit then it would have a p/e ratio of 10,000 which would massively distort the average.

 

[sfnssie]

Although negative P/E ratios are mathematically possible, they generally aren't accepted in the financial community and are considered to be invalid or just not applicable.

 

[Rhody Trader]

For an index, the P/E is derived using the cumulative earnings of the included stocks (weighted). You don't calculate it using the individual stock P/Es.