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Singapore Inc – PE Ratio not quite right

Posted by theonlinecitizen on April 17, 2007

By Leong Sze Hian

“If Singapore Inc were a listed company, what would its market cap be? Think about it. My GDP, which is profit earned in a year, is S$210 billion. The price earning ratio on SGX – average is now 20….I calculated if Singapore Inc went IPO, it is a 4-trillion-dollar company.” – PM Lee, channelnewsasia

To the best of my knowledge, the concept of using the Price over Earnings Ratio (PE) has never been applied to countries.

However, for the sake of discussion and analysis, what are some possible contextual relationships between GDP and the earnings of a listed company?

Well, since we are in a sense venturing into the unknown, I shall try, subject to the caveat that I may really be trying a bit too hard, to be creative.

So, GDP is like output. For a company, output is not just earnings. It may be earnings, plus goods produced not sold, goods in process, increase in the value of assets, plant and equipment, returns on investments both realised and unrealised, etc.

So, we can see, though not very clearly, because we are dealing with a new concept, that equating earnings to GDP may overstate the so called PE ratio as a guide to the determinent of the price of a share listed on a stock exchange.

If earnings in relation to GDP is an over-inflated measure, then, what may be the closet equivalent?

Well, how about profits? Because profits in a company can be distributed or retained. For a country, can GDP be distributed as dividends? Obviously not. Therefore, if we try to stretch our imagination a bit, perhaps the only profits available for distribution are the foreign reserves and other investments in Singapore and abroad. But, at this point, we may run into the conceptualisation issue of whether the reserves and other assets can be distributed? If not, then, in a sense, maybe only the increase on the assets can be deemed as available for distribution, like in a company.

Would you pay 20 times PE for a company that is unlikely to ever be able to distribute profits using conventional analysis of value?

So, finally, what’s my best guess? – The incremental value of GDP per annum is perhaps the best equivalent to the profits of company.

But if we say profits should be used instead of earnings in determining the price of a country, we may be accused of being gramatically, literally, and dictionarily (if there is such a word) wrong.

However, the reality of this debate is perhaps that it maybe not so right in the first place. Otherwise, surely, someone else in history, would have applied this reasoning to the valuation of countries.

Using the PE ratio may mean that people like George Bush and others from countries with large GDPs, ought to be paid even more than the computations based on the initial rationale of pay as a percentage of 0.13 per cent of total Government expenditure, or 0.022 per cent of GDP


10 Responses to “Singapore Inc – PE Ratio not quite right”

  1. Dr.Huang said

    How about ROA when we don’t even know what the A is ( remember the ex-president OTC had some sort of a tiff with the rulers on this)!
    Anyway, they don’t run thus place like a company cos they determine their own salaries and even without a EGM, wrote their own checks although all the shareholders are against it!
    Maybe all of the shareholders do not have voting rights. So can just talk and talk but cannot exercise vote!
    Anyway, like LTK says, this is waste of time for all.

  2. Charissa said

    In the 1st place, he should not have equated a nation with a company. it is ridiculous to do this! a nation has more responsibilty to its people than a company. A nation is where people can unite and identified with others. A nation has a shared culture. A nation is not a place but home…. people are actually emotionally attached to their nation. I can go on an on…..

  3. flabbergasted said

    Ridiculous for the PM to even compare Singapore to a corporation. With that mentality, you will never get our young men to join NS with a sense of serving the country.’

    What about our elderly citizens ? Based on the analogy, they should all be retrenched. What company would want all these non-productive workers still hanging around ?

  4. Hi all,

    Yep, I fully agree that it’s a flawed analogy. As Charissa said, Singapore is a Nation and not just a country, much less a company. A nation is made up of people – with dreams, aspirations, hope, fears. In short, a nation is one of being human.

    A company, in short, is one and has only one purpose – to make a profit. Some companies, in this pursuit for profit, even exploit their workers.

    We have started on a path where we have become so pragmatic that we are starting to lose our perspective as a people – human beings with an inner self.

    It’s really quite sad.

    And when we see ministers using the excuse of “not eroding the work ethics” when refusing to give our old folks just that little bit more, we know we have lost something inside.


  5. MM (Movie Monster) said

    As far as I know, naively may be, that GDP records transactions. It does not measure efficiency, profits and wealth distribution etc.

  6. bornSingaporean said

    No wonder all the ministers believe is never enough, because the ideology is set forth from the beginning by LKY ! LKY is indeed the greatest liability in history of Singapore. To believe that he care for Singapore for 40years where he actually care for how much wealth and control Singapore can bring to him !!!!

    What’s the fucking point of talking economic value and worth if all these cannot be enjoy by mortal being other than gahmen ?

    LKY can stop talking rubbish since even he semi-tired, he still get paid more than MiniLee 1!!!

    this only show why LKY put digit and value on Singaporean because Singaporean help him to generate billions while he resting and retired. Isn’t this the mindset of a head for a company incorporated ?? Damn it, no wonder I keep paiding and paiding non-stop and get exploit and exploit like nobody business….

  7. mammothwhale said

    From the context of PM’s quote, it seems that he tried to relate GDP to the profit of a company, therefore using the PE ratio. But to me it seems more reasonable to link, if you really have to, the GDP to a company’s revenue. In that case, using the Price-Sales ratio would be more relevant. I doubt Singapore Inc would IPO at $4 Trillion in that case.

    Maybe we could assume “earnings” to be the absolute growth in GDP, although my preference would be the actual value add of the economy though that would probably be very difficult to measure. If Singapore grows by 7%, that would be approx. $14.7B increase from a base of $210B. Using a PE of 20, that should translate into a “market value” of $294B. Pretty far from the $4 trillion mark but comparable with Fortune/Global 50 firms.

  8. mrbiao said

    May I also point out that GDP is not a measure of profitability, but is a measure of production. I don’t understand how GDP can be equated to profit.

    If it is indeed a measure of profitability and Singapore has a profit of $210 billion in a year, then each of our 4.5 million citizens should have an estimated “profit” of $46,666 per year… which is certainly not the case. This further proves that the profits are mostly in the hands of those elite few.

  9. person who likes good governments said

    hello fellow countrymen, lend me your ears!

    i don’t have much experience on our government seeing that i’ve only been around for 16 years, most of the time spent closeted in school, to say if the PAP is either a SAINT(all hail the great ones!) or a dictator(i learnt a phrase ‘elitist government’ yesterday!). i just couldn’t help being paranoid and wondering if the ‘evil’ government would come in the middle of the night to throw a sack over our heads and drag us away to some top secret facility like in V for Vendetta for speaking out against them. Dear government, i hope you don’t do that. it iz eevil nd verey bad. but our country doesn’t seem to be crashing into walls or anything, so that’s okay.

  10. shangkim said

    Our ministers must remember that we are a rugged society not just working for money sake

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