Definition
Earnings yield helps compare stock returns to bond yields. A stock with 5% earnings yield can be compared to a 5% bond yield. Higher earnings yield suggests potentially better value. It's useful for making cross-asset allocation decisions.
Formula
Earnings Yield = EPS / Stock Price = 1 / P/E Ratio
Example
A stock with P/E of 20 has earnings yield of 5% (1/20). If Treasury bonds yield 4%, the stock offers a 1% earnings premium over the risk-free rate.
FAQ
What is Earnings Yield?
The inverse of P/E ratio, showing earnings as a percentage of stock price.
How do you calculate Earnings Yield?
A common formula for Earnings Yield is: Earnings Yield = EPS / Stock Price = 1 / P/E Ratio
Why is Earnings Yield important?
Earnings Yield helps investors evaluate valuation and make more informed decisions.