Page 12 THE MALDEN ADVOCATE–Friday, October 21, 2022 Football Tornadoes Fall Short to Lynn English, 8-6 James Hyppolite, left, and Earl Fevier work to tackle the Bulldog ball carrier on Friday night. (Advocate photos by Emily Harney) THE EARNINGS MULTIPLIER multiplier would be 12 years. In other words, it would take 12 years to recover the initial investment of $75. Corporation Y would be trading at 12 times its earnings. This might be a simple way T he earnings multiplier is a financial tool that compares a corporation’s current price per share to its earnings per share. It is calculated as the price per share divided by the earnings per share. This is also referred to as the price to earnings ratio. This tool can be used to compare the cost of one stock with the cost of another stock in a similar industry, or simply to determine just how expensive a stock is relative to its earnings per share. The price paid for a stock is based upon the corporation’s anticipated future value and the future cash flows generated by that corporation. Corporate earnings naturally play a very important role in its valuation and the price per share that investors are willing to pay. If Corporation X has a current market price per share of $100 and a current earnings per share of $10, the earnings multiplier would be 10 years. In other words, it would take 10 years to recover the initial investment of $100. One might say that Corporation X is trading at 10 times its earnings. If Corporation Y has a current market price per share of $75 and a current earnings per share of $6.25, the earnings to determine which stock is the least expensive assuming they are in the same industry. Of course, there would be other factors that would go into the determination of whether to purchase Corporation X or Corporation Y stock. The S & P 500 was valued at 4,778 on January 3, 2022. It is now at 3,690 as of October 14, 2022. The earnings multiple was extremely high back on January 3, 2022. It has lowered considerably. Valuations are more in line with earnings and common stock right now is less expensive to buy relative to earnings than was the case at the start of the year. Interest rate increases by the Federal Reserve have a negative affect on corporate earnings and therefore stock valuations. It is difficult to predict how many more rate increases it will take to begin to tame inflation. Consumer spending has still been strong but that won’t last if the rate of inflation does not begin to drop in the near future. The savings that consumers built up during the pandemic will eventually be depleted. The key will be for wage increases to at least be equal to the inflation rate. If not, consumer spending will eventually decrease to levels not conducive to sustaining healthy corporate profits, and hence, stock valuations. Joseph D. Cataldo is an estate planning/elder law attorney, Certified Public Accountant, Certified Financial Planner, AICPA Personal Financial Specialist and holds a master’s degree in taxation. Kervenson “Kevin” Exilhome runs the ball in for a touchdown. Malden RB Kervenson “Kevin” Exilhome on the carry. Malden defensive back Earl Fevier works to take down the ball carrier for Lynn English during their game Friday night at Manning Bowl in Lynn. Tornado lineman Vidal Garner takes a knee next to the referee. Quarterback ¬¬Aiden Brett gets ready to pass the ball during Martin’s game with one English Friday night Tornadoes pass rusher Vidal Garner breaks through Lynn English defenders during Malden’s game with the Bulldogs on Friday, Kervenson “Kevin” Exilhome gains some yards on the carry as a player from Lynn English works to tackle him. Samuel Antoine of Malden on the carry for the Golden Tornado’s as a defender from Lynn English works to tackle him. Meet the talented Malden High School Golden Tornadoes Cheerleaders Kervenson “Kevin” Exilhome comes up inches short of scoring a touchdown for Malden’s Golden Tornadoes Friday night during their game with Lynn English.
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