Questions as they arise: reading Rothbard's America's Great Depression

Miscellaneous Newbies
1

Hi,

I’ve just starting reading Murray Rothbard’s America’s Great Depression and thought I’d start a thread for anyone who is interested in following along.

First off, I have a basic question which is, what does the following statement mean?:

‘Traditionally stocks were valued at about ten times earnings.’ page 15

‘ten times earnings’ is economics/financial jargon. Being relatively uneducated in the lingo, what does it actually mean?

Thanks,

Jim

2

I’m guessing 10 times the dividends they paid (which would under normal conditions be the reason to acquire a stock).

3

Google “P/E ratio” which stands for Price/Earnings ratio. If a company’s annual earnings (profits) are $30million and there are 30million shares outstanding, then the annual EPS (Earnings Per Share) is $1. If the shares trade at $10, then the shares P/E ratio would be 10, i.e. this company’s shares would be trading at ‘ten times earnings’.

Nielsio, the P/E ratio (which Rothbard refers to) is not related to dividends. Dividend Yield is what describes the relationship between the dividend and the share price. In the above example, if the company paid out half of its ($1) EPS earnings as an annual dividend of $0.50/share, then the Dividend Yield would be $0.50/$10 = 5%.

4

Yes, that’s what I suspected. Thanks.

5

Good idea for a thread. I’ve been reading up on American history and read something really interesting about the Great Depression on Shmoop. Apparently, things were looking so hopeless by 1933 that over 100,000 Americans attempted to migrate to Soviet Russia in hopes of a better life.