E10 is a concept invented by Prof. Robert Shiller, who uses E10
for his Shiller P/E calculation. When we calculate the todays
Shiller P/E ratio of a stock, we use todays price divided by
E10. What is E10? How do we calculate E10? E10 is the average of
the inflation adjusted earnings of a company over the past 10
years. Lets use an example to explain. If we want to calculate
the E10 of Wal-Mart (WMT) for Dec. 31, 2010, we need to have the
inflation data and the earnings from 2001 through 2010. We
adjusted the earnings of 2001 earnings data with the total
inflation from 2001 through 2010 to the equivalent earnings in
2010. If the total inflation from 2001 to 2010 is 40%, and Wal-
Mart earned $1 a share in 2001, then the 2001s equivalent
earnings in 2010 is $1.4 a share. If Wal-Mart earns $1 again in
2002, and the total inflation from 2002 through 2010 is 35%,
then the equivalent 2002 earnings in 2010 is $1.35. So on and so
forth, you get the equivalent earnings of past 10 years. Then
you add them together and di