GlossaryIntermediate
Earnings Yield
A company's earnings per share divided by its price per share — the inverse of the P/E ratio.
Earnings yield is a company's earnings per share divided by its price per share — mathematically the inverse of the P/E ratio, expressed as a percentage rather than a multiple. A P/E of 20 corresponds to an earnings yield of 5% (1 ÷ 20).
Expressing valuation as a yield makes it directly comparable to other yield-based figures, such as a bond's interest rate — a common use case being a rough comparison of how a stock's earnings yield stacks up against prevailing bond yields.
Examples
- A stock trading at a P/E of 25 has an earnings yield of 4% (1 ÷ 25).
- Earnings yield is sometimes compared directly against bond yields as a rough cross-asset valuation check.