Learn what earnings yield measures, how it relates to the price-to-earnings ratio, and why investors use it to compare earnings power with price.
Earnings yield measures a company’s earnings relative to its share price.
It is commonly described as the inverse of the price-to-earnings ratio (P/E).
If multiplied by 100, it is expressed as a percentage.
The measure gives investors a quick way to ask:
“How much earnings am I getting for the price I am paying?”
That is useful when comparing equities with:
The two measures contain the same information but present it differently.
Some investors prefer earnings yield because it expresses valuation in a return-like format that is easy to compare with other yields.
If a stock earns $5 per share and trades at $50, its earnings yield is:
That corresponds to a P/E ratio of 10.
Earnings yield is not the same as a cash return actually paid to investors.
It reflects accounting earnings, not necessarily:
That is why it should be compared with other measures rather than treated as a literal payout yield.