Trailing P/E vs Leading P/E

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Rasec

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Can someone please explain the difference?
Why is the justified PE P0/E0 = Div payout * 1+G / k - g? Vs
P0/E1 = Div payout / K-g ?
I don’t get why we grow the dividend for “trailing” PE??
Ex: a stock has a payout ratio of 40%. The shareolders require a return of 11% and the expected growth rate in dividends is 5%. Calc trailing and leading PE
Please help!
Thanks!
 
Think of it this way if earnings are expected to grow then P0/ E1 will be smaller because the denominator got bigger. P0/E0 would be larger in this case because it has a smaller denominator. The (1+g) in the numerator for that equation is a bit confusing but makes sense if you think of it intuitively. If earning grow at a rate of g, then the trailing P/E will be greater by a factor of g.
 
Miss CLeo - thanks for your response!
The ratio states:
P0 / E0 and the word “trailing” means before not in the future. So the definition is confusing because
Leading PE is P0/E1, which makes sense to grow it?!?! But we won’t grow it!
If we are comparing a series of P/Es for the next three years. at Time 0, would you grow the dividend to compute the trailing P/E? Or would you start growing it in year 1?
I’m slowly getting there ;)
 
Take this due;
Justified leading= P0/ E1
If we go back to the GGM=
P0 = Div 1/r-g = E1* pay out ratio / r-g, if we divided two side by E1 we get
P0/E1 = payout / r-g
Justified trailing
P0 = Div 1/r-g = E0 * (1+g) * payout / r-g, if we divided two side by E0 we get
P0/E0 = (1+g) * payout / r-g
It’s simple man.
 
AndrewUNH wrote:just remember leading has to be smaller
Click to expand...

Not if growth is negative, then you would have a smaller denominator and a larger number. I.e. If E1
 
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