The cyclically adjusted PE ratio (CAPE) is a modification of the PE ratio to account for the effect on profits of the economic cycle. The PE ratio calculated at any point in time is affected by the current state of the economy. This effect is, of course, particularly strong in the case of cyclical shares. The simplest, and most widely used approach is to use a simple average of annual EPS over a long period, usually ten years. It is also common practice to adjust the EPS into real terms, essentially making this a long term PE corrected for inflation. Only the EPS needs adjustment, not the price. The cyclically adjusted PE often compared over several years to look at historical trends and, especially, to identify the level it ...