Earnings yield is a company's earnings per share divided by its current share price, shown as a percentage. It is the P/E ratio turned upside down: a P/E of 20 is an earnings yield of 5%, because 1 divided by 20 is 0.05. It tells you how much profit the company earned last year for every 100 you pay for the stock, which makes it easy to set next to an interest rate.
Worked example
Company A's shares trade at $50, and it earned $4.00 per share last year. Earnings yield = $4.00 ÷ $50 = 0.08 = 8%. The same figures give a P/E of $50 ÷ $4.00 = 12.5, and 1 ÷ 12.5 = 0.08, so both views agree. If a savings bond pays 4% interest, 8% looks larger, but the two are not like for like: the bond pays its interest out to you, while the company keeps most of its earnings, and those earnings can grow or shrink.
Why it matters
Earnings yield turns a P/E ratio into a rate you can read at a glance, and it lets you set a company next to other things that pay a percentage, such as a bond or a savings account. The comparison is only a rough guide. Earnings are not paid out to you, they can rise or fall, and a stock carries more risk than a government bond. If earnings are negative, the yield is negative and the P/E is not defined. A one-off gain can inflate it. A high yield is a question to look into, not a verdict.
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Frequently asked questions
Divide the earnings per share by the share price and show the result as a percentage. If a company earned $3.00 per share and the stock trades at $60, the earnings yield is $3.00 ÷ $60 = 5%. You can also take 1 divided by the P/E ratio: 1 ÷ 20 is the same 5%.
You can set them side by side as a rough reference, but they are not equivalent. A bond pays its interest to you and returns the face value at maturity, while a company keeps its earnings, which can grow or shrink, and a stock carries more risk. The comparison is a debated idea, not a rule.
It means the company made a loss over the period, so earnings per share is negative. The P/E ratio is then not defined, which is one reason some readers prefer the yield form. A negative figure is a prompt to read the accounts and find out why.
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Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.