FTSE price/earning ratio is distorted by write-offs

P/E ratio of 16 on uk market falls to 12 if goodwill write-offs are stripped out

The P/E of the FTSE 100 has fallen substantially since early 2000 but the figure, at some 16 times earnings, still looks inflated to some. The P/E ratio is being inflated by low corporate earnings, even though, on an historical basis, the figure is about average ' neither in the high 20s as seen at the peak of the bull market nor the single-figures from the oil crisis of the 1970s. A number of goodwill write-offs in the past year has reduced earnings, making the ratio appear higher than is expected given the weakness of equity markets. Nigel Richardson, senior investment strategist a...