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BP p.l.c. Message Board

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  • cdanajackson cdanajackson Mar 16, 2010 9:20 PM Flag

    BPs Realitive UnderValuation

    A low P/E ratio does not an undervalued stock make. The "E" in the P/E is based on accrual accounting, which is great for the company, but not so great for the investor. Reported earnings does not follow the cash.

    Just because a company reports earnings of $500 million in a particular quarter, for example, doesn't mean the company generated $500 million in CASH. The company could have generated $100 million in cash relative to its net income, thus overstating its true profitability or it could have generated $800 million in cash relative to its net income, thus, understating its true profitability.

    In other words, the $500 million in reported earnings isn't sitting in some bank account somewhere. Net income is PURELY for figuring out what the company owes on its federal tax return.

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    • you sir are a fking idiot. The E in p/e does stand for earnings, wheather those earnings are in cash, acc't rec. they are a product of operations and sometimes extrordinary events like gain on sales and they are after taxes andother expenses. If you are referring to cash flow then say so otherwise shut the fk up.. your lack of understanding basic accounting should preclude you from ever investing.

      • 2 Replies to jbivest
      • Yep, I agree. But I wouldn’t waste my time on this clown. While he is wasting time posting B.S. on a message board, we’re investing and making money.
        WHAT A LOSER!!! LOL!!!

      • You needn't be so formal, by addressing me as "sir".

        I don't agree with you that I'm an "idiot", but I do enjoy f*cking, but that's another issue.

        Also, earnings from operations comes from -- you guessed it -- operating earnings! Not net income.

        Finally, all the cash brought into the company is operating cash flow -- not just plain old cash flow, because plain old cash flow is before deducting capital expenditures.

        (p.s., I understand accounting quite well. It's you who lacks an understanding of accounting -- particularly accrual accounting. Feel free to use your favorite search engine to learn about it.)

    • P/E is a meaningful metric, as is EBITDA and cash flow. Different people have their preference of what is more important to follow. The old adage, cash is king, comes to mind. Internally we look at EBITDA more (not looking as an investor). So, in a sense, both of you are right, if looking at it from a nice perspective. Or both of you are partially wrong if you just want to disagree.

      • 1 Reply to iokuok007
      • As an investor in or a buyer of a company, I would still be interested in how much cash a company is generating -- not what the company's accountants tell me the company is earning and is reporting to the IRS for tax purposes (i.e., net income).

        Like you said, cash is king.

        Am I more interested in what the company actually earned or someone's opinion of what the company earned? Clearly, for me, it's the latter.

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