Cyclically adjusted multiple
Price against average profit over a long span covering both the upswing and the downturn, rather than against the profit of one year.
How to read the number
The point is to stop a cyclical company looking cheap at the peak of profit and expensive at the bottom of the cycle.
When the metric lies
Averaging over the past assumes the business has not changed structurally. For a company that has switched profile, the average profit belongs to a different company.
Also known as: cape