Earnings Yield

What is the Earnings Yield?

Earnings yield is the flip side of the P/E ratio, expressed as a percentage. It lets you compare a stock’s earning power directly against bond yields and other assets.

How to interpret it

A higher earnings yield means cheaper valuation. When a stock’s earnings yield exceeds the 10-year government bond yield by a wide margin, equity looks attractive on a relative basis.

What’s a good Earnings Yield?

Compare to the ~7% government bond yield: an earnings yield well above that is attractive; below it, the stock is richly valued.

Common mistakes

• Confusing earnings yield (all profit) with dividend yield (only cash paid out).
• Using it for loss-making companies where it turns negative and meaningless.