E10 - Definition, Formula & Calculator

What Is E10?

E10 is the inflation-adjusted average earnings per share of a company over the past 10 years. The term is most closely associated with economist Robert Shiller’s cyclically adjusted valuation framework, where it serves as the earnings denominator in the Shiller P/E ratio, also known as the CAPE ratio.^1,2

Instead of relying on a single year’s earnings, E10 smooths profits across a full decade and adjusts those earnings for inflation so they are expressed in today’s purchasing-power terms. That makes it a useful tool for investors who want a more normalized view of a company’s earning power, especially when recent earnings may be unusually high or low.

The core intuition is simple: one year of earnings can be noisy, but 10 years of inflation-adjusted earnings often provide a steadier baseline for valuation. This is particularly helpful for cyclical businesses, where profits can swing sharply with the economy, commodity prices or industry conditions.

At a high level, E10 can be expressed as:

Because E10 is a per-share measure, it is most often used alongside share price to calculate a cyclically adjusted valuation multiple:

How Is E10 Calculated?

E10 starts with reported earnings per share, then adjusts each historical period’s EPS for inflation so that older earnings are translated into current purchasing-power terms. After that, the 10 years of adjusted EPS are averaged.

The basic structure is:

Each period’s adjusted EPS is calculated as:

Where:

• EPS_t is earnings per share for a historical period.
• CPI_t is the consumer price index for that historical period.
• Current CPI is the CPI for the most recent period used in the calculation.

This inflation adjustment matters because a dollar of earnings from 10 years ago is not directly comparable to a dollar of earnings today. Converting all past earnings into current-price terms makes the average more economically meaningful.

GuruFocus historically describes the calculation in the same spirit: adjust each period’s EPS by CPI, then add the adjusted EPS values for the trailing 10 years and divide by 10. GuruFocus also notes that it uses the CPI data of the country or region where the company is headquartered, and if that CPI series is unavailable, U.S. CPI is used by default.³

In practice, investors may see slight variations in implementation depending on the data provider:

• Some use annual EPS figures.
• Some use rolling quarterly data to build a trailing 10-year average.
• Some use reported EPS, while others may prefer normalized or adjusted earnings.

The underlying idea, however, remains the same: smooth earnings over a decade and restate them in current dollars.

E10 Trend Over Time

Looking at E10 over time can be more informative than looking at a single point estimate. A rising E10 trend usually suggests that a company’s normalized earning power has been improving over the long run. A flat or declining trend may indicate slower growth, margin pressure, cyclical weakness or structural deterioration in the business.

Because E10 is a smoothed measure, it usually moves more gradually than trailing 12-month EPS. That slower movement is a feature, not a flaw: it is designed to filter out short-term volatility and highlight longer-term earnings power.

What Does E10 Tell You?

E10 tells you what a company has earned, on average, over the past decade after adjusting for inflation. In other words, it is an attempt to estimate normalized earnings power rather than current-period earnings power.

That makes E10 especially useful in valuation work. If a company’s recent earnings are temporarily inflated by unusually favorable conditions, a standard P/E ratio may make the stock look cheaper than it really is. E10 can help correct for that by anchoring valuation to a longer earnings history. The reverse is also true: if recent earnings are temporarily depressed, E10 may show that the business is stronger than the current P/E suggests.

Investors often use E10 in four ways:

1. To calculate Shiller P/E. This is the most common use. Dividing price by E10 produces a cyclically adjusted valuation multiple.
2. To compare current valuation with normalized earnings. E10 can provide a more stable denominator than trailing EPS.
3. To study long-term earnings quality. A steadily rising E10 may indicate durable business strength.
4. To reduce the noise of the business cycle. For cyclical companies, E10 can be more informative than a one-year earnings snapshot.

A higher E10 by itself is not automatically “good” or “bad.” It simply means the company has generated higher inflation-adjusted average earnings per share over the past decade. The real analytical value comes from comparing E10 with the stock price, historical trends and peer companies.

Limitations of E10

Like any valuation input, E10 has important limitations.

First, E10 is backward-looking. It summarizes the last 10 years, not the next 10. If a company’s economics have changed materially, the historical average may no longer be a good guide to future earnings power.

Second, E10 can understate the earning power of fast-growing companies. If a business has compounded earnings far faster than inflation, averaging in much smaller earnings from earlier years can pull the figure down and make the stock appear more expensive on a Shiller P/E basis than it may actually be. This is one reason E10 is often less useful for young, rapidly scaling businesses.^2,4

Third, accounting distortions can affect E10. EPS can be influenced by one-time charges, write-downs, tax items, share-count changes and other non-operating factors. A 10-year average smooths volatility, but it does not automatically eliminate accounting noise.

Fourth, E10 may be less meaningful for companies with unstable or frequently negative earnings. If a business has not demonstrated durable profitability, a decade average may still produce a weak or misleading signal.

Finally, cross-industry comparisons should be made carefully. E10 is a useful normalization tool, but it does not erase differences in business models, capital intensity, cyclicality or growth prospects.

Real-World Example

A good way to understand E10 is to compare it with ordinary trailing EPS for a cyclical business.

Consider an energy producer such as Exxon Mobil. In strong commodity environments, oil and gas companies can report very high near-term earnings. If an investor values the stock using only the latest 12 months of EPS, the company may appear unusually cheap. But those profits may not be sustainable across a full cycle. E10 helps address that by averaging inflation-adjusted earnings over 10 years, including both strong and weak periods.

By contrast, a company like Costco tends to have steadier earnings and less dramatic cyclicality. For a business like that, E10 may still be useful, but the gap between trailing P/E and Shiller P/E is often less about commodity or macro cycles and more about long-term growth and consistency.

That is why E10 is best thought of as a normalization tool. It is not trying to predict next year’s earnings. It is trying to answer a different question: what has this company earned, on average, across a full decade in today’s dollars?

FAQs

What is a good E10?

• There is no universal “good” E10 level because E10 is an earnings figure, not a ratio. A higher E10 generally means higher normalized earnings per share, but it only becomes analytically useful when compared with the stock price, the company’s own history or peer valuations.

What is the difference between E10 and the Shiller P/E?

• E10 is the denominator: the 10-year average of inflation-adjusted EPS. Shiller P/E is the valuation ratio built from it:
  $$\text{Shiller P/E} = \frac{\text{Price}}{\text{E10}}$$

What is the difference between E10 and trailing EPS?

• Trailing EPS reflects recent earnings, usually over the last 12 months. E10 averages inflation-adjusted earnings over 10 years. Trailing EPS is more current, while E10 is more normalized and less sensitive to short-term swings.

Can E10 be negative?

• Yes. If a company has accumulated enough losses or weak earnings over the past decade, the average inflation-adjusted EPS can be negative. In that case, the Shiller P/E becomes less useful or not meaningful.

How should investors use E10?

• E10 is best used as part of a broader valuation framework. Investors often pair it with Shiller P/E, historical trend analysis, peer comparisons and forward-looking business analysis. It is most helpful when recent earnings are unusually volatile or cyclical.

Summary

E10 is a simple but powerful concept: it measures a company’s average inflation-adjusted earnings per share over the past 10 years. By smoothing profits across a decade, it gives investors a more stable view of normalized earning power than a single year of EPS can provide.

Its main value lies in valuation, especially through the Shiller P/E ratio. For cyclical or mature businesses, E10 can help investors avoid overreacting to temporary earnings spikes or collapses. But it is not a complete measure on its own. Because it is backward-looking and can understate the economics of fast-growing companies, E10 works best when used alongside other valuation and quality metrics.

Sources

1. Robert J. Shiller, Irrational Exuberance, Princeton University Press: https://press.princeton.edu/books/paperback/9780691166262/irrational-exuberance
2. Investopedia, “Cyclically Adjusted Price-to-Earnings (CAPE) Ratio”: https://www.investopedia.com/terms/c/cape-ratio.asp
3. GuruFocus legacy term page, “E10”: https://www.gurufocus.com/term/e10
4. Corporate Finance Institute, “Shiller PE Ratio”: https://corporatefinanceinstitute.com/resources/valuation/shiller-pe-ratio/
5. U.S. Bureau of Labor Statistics, Consumer Price Index: https://www.bls.gov/cpi/
6. Encyclopaedia Britannica, “Robert J. Shiller”: https://www.britannica.com/biography/Robert-J-Shiller