## What is Earnings Yield?

The **Earnings Yield** is calculated by dividing the earnings per share (EPS) in the trailing twelve months by the latest closing market share price.

Table of Contents

- How to Calculate Earnings Yield
- Earnings Yield Formula
- Earnings Yield vs. P/E Ratio: What is the Difference?
- What is a Good Earnings Yield?
- Earnings Yield vs. Dividend Yield vs. Bond Yield
- Earnings Yield Calculator
- 1. Market Share Price and Shares Outstanding Assumptions
- 2. Earnings Yield Calculation Example
- 3. Earnings Yield and P/E Ratio Analysis Example

## How to Calculate Earnings Yield

The earnings yield metric is the inverse of the price-to-earnings ratio (P/E ratio) and measures the earnings per share (EPS) that a company generates for each dollar invested into its shares.

There are two inputs required to calculate the earnings yield metric.

**Earnings Per Share (EPS)**→ A company’s net income (“bottom line”) divided by its total number of shares outstanding, most often on a diluted basis, i.e. potentially dilutive securities are taken into account instead of only basic shares.**Share Price**→ The latest closing stock price of the company according to the market, i.e. the price that investors are willing to pay right now to own a share in the company.

The formula used to calculate the earnings yield is the reciprocal of the price-to-earnings ratio (P/E) – the earnings per share (EPS) is divided by the latest closing share price.

For investors, the metric can be informative in terms of helping you understand how much of the Company’s earnings you will be receiving for each dollar invested in the underlying company’s issued shares.

Therefore, the earnings yield metric facilitates more practical comparisons among two or more public companies.

## Earnings Yield Formula

The formula used to calculate the earnings yield is as follows.

**Earnings Yield =**Earnings Per Share (EPS)

**÷**Share Price

Where:

- Earnings Per Share (EPS) → Net Income ÷ Total Number of Diluted Shares Outstanding
- Share Price → Current Market Price (or Latest Closing Date)

Alternatively, the earnings yield can be calculated by dividing one by the P/E ratio of the company.

## Earnings Yield vs. P/E Ratio: What is the Difference?

For instance, suppose a company’s shares are currently trading at $10.00 in the open market, and its diluted EPS for the latest fiscal year was $1.00.

The following formulas can be used to calculate the earnings yield and P/E ratio:

- Earnings Yield = $1.00 Diluted EPS ÷ $10.00 Share Price = 10.0%
- P/E Ratio = $10.00 Share Price ÷ $1.00 Diluted EPS = 10.0x

Therefore, given the yield of 10.0%, the takeaway is that for each dollar invested into the company’s shares, the investment would generate $0.10 of EPS.