What is the 'P/E 10 Ratio'
The P/E 10 ratio is a valuation measure, generally applied to broad equity indices, that uses real pershare earnings over a 10year period. The P/E 10 ratio uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in profit margins over a typical business cycle. The ratio was popularized by Yale University professor Robert Shiller, who won the Nobel Prize in Economic Sciences in 2013. It attracted a great deal of attention after Shiller warned that the frenetic U.S. stock market rally of the late1990s would turn out to be a bubble. The P/E 10 ratio is also known as the "cyclically adjusted PE (CAPE) ratio" or "Shiller PE ratio."
BREAKING DOWN 'P/E 10 Ratio'
The P/E 10 ratio is based on the work of renowned investors Benjamin Graham and David Dodd in their legendary 1934 investment tome “Security Analysis.” Graham and Dodd recommended using a multiyear average of earnings per share (EPS) – such as 5, 7 or 10 years – when computing P/E ratios to control for cyclical effects.
The P/E 10 ratio is calculated as follows – take the annual EPS of an equity index such as the S&P 500 for the past 10 years. Adjust these earnings for inflation using the CPI. Take the average of these real EPS figures over the 10year period. Divide the current level of the S&P 500 by the 10year average EPS number to get the P/E 10 ratio or CAPE ratio.
The P/E 10 ratio varies a great deal over time. According to data first presented in Shiller’s bestseller “Irrational Exuberance” (which was released in March 2000, coinciding with the top of the dotcom boom), updated to cover the period 1881 to November 2013, the ratio has varied from a low of 4.78 in December 1920 to a peak of 44.20 in December 1999.
A criticism of the P/E 10 ratio is that it is not always accurate in signaling market tops or bottoms. For example, an article in the September 2011 issue of the "American Association of Individual Investors’ Journal" noted that the CAPE ratio for the S&P 500 was 23.35 in July 2011. Comparing this ratio to the longterm CAPE average of 16.41 would suggest that the index was more than 40% overvalued at that point. The article suggested that the CAPE ratio provided an overly bearish view of the market, since conventional valuation measures like the P/E showed the S&P 500 trading at a multiple of 16.17 (based on reported earnings) or 14.84 (based on operating earnings). Although the S&P 500 did plunge 16% during a onemonth span from midJuly to midAugust 2011, the index subsequently rose more than 35% from July 2011 to new highs by November 2013.

P/E 30 Ratio
The pricetoearnings (P/E) ratio is the valuation ratio of a ... 
Forward Price To Earnings  Forward ...
A measure of the pricetoearnings ratio (P/E) using forecasted ... 
Ratio Analysis
A ratio analysis is a quantitative analysis of information contained ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Multiple
A term that measures some aspect of a company's financial wellbeing, ... 
Rule Of 18
A rule whereby the sum of the inflation rate and the P/E ratio ...

Markets
Getting On The Right Side Of The P/E Ratio Trend
Buying at the right time is crucial, but how do we know when that is? 
Investing
P/E Ratio: Conclusion
What have we learned about the P/E ratio? Although the P/E often doesn't tell us much, it can be useful to compare the P/E of one company to another in the same industry, to the market in general, ... 
Investing
Beware False Signals From The P/E Ratio
The P/E ratio is a simple tool for evaluating a company, but no one ratio can tell the whole story. 
Investing
Is Stock With a Lower P/E Always A Better Choice?
Is a stock with a lower P/E always a better investment than a stock with a higher one? The short answer is no, but it depends on a few things. 
Investing
Investment Valuation Ratios: Price/Earnings Ratio
By Richard Loth (Contact  Biography)The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most ... 
Investing
P/E Ratio: Problems With The P/E
So far we've learned that in the right circumstances, the P/E ratio can help us determine whether a company is over or undervalued. But P/E analysis is only valid in certain circumstances ... 
Markets
How Do I Calculate the PriceEarnings Ratio?
If Apple is trading at $108.73 per share, and its trailing twelve months' EPS is $6.45, calculate the P/E ratio as... 
Markets
Why Earnings Results Have Not Mattered to the U.S. Equity Markets
Discover why the U.S. stock market is probably in an asset bubble, how stock prices became detached from the fundamentals and why the Fed is the main culprit. 
Investing
P/E Ratio: What Is It?
P/E is short for the ratio of a company's share price to its pershare earnings. As the name implies, to calculate the P/E, you simply take the current stock price of a company and divide by ... 
Markets
Is the CAPE Ratio Predicting an Era of Low Returns?
When the the CAPE ratio is high, as it is now, it can indicate a bubble economy nearing its peak. Are we headed towards another bust?

What is the average pricetoearnings ratio in the banking sector?
Explore the price/earnings ratio in regard to the banking industry and learn what the average P/E ratio is for most banking ... Read Answer >> 
How do I calculate the P/E ratio of a company?
Find out how to calculate this common valuation ratio and what the results can tell you about a company's performance. Read Answer >> 
How can I find the P/E ratio on an ETF's underlying index?
Learn how analysts and investors can determine the pricetoearnings ratio for the underlying index of an exchangetraded ... Read Answer >> 
What does it mean if a bond has a zero coupon rate?
Learn what the average range for the price to earnings (P/E) ratio in the electronics sector is and which factors influence ... Read Answer >> 
What is the difference between forward p/e and trailing p/e?
Understand the difference between the trailing P/E ratio, which is the standard pricetoearnings calculation, and the forward ... Read Answer >> 
What is the average pricetoearnings ratio in the drugs sector?
Learn what the average pricetoearnings ratio is for companies operating in the drugs sector and why this metric is important ... Read Answer >>