Earnings yield
Definition · Level 10 · Valuation
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Earnings per share ÷ share price: the yearly profit each dollar invested in the stock earns. It is the inverse of the price-to-earnings (P/E) ratio.
Example
Brewline: $1.40 ÷ $20 = 7.0%, the inverse of 14.3x.
Where Tradecraft teaches it
Level 10 · Valuation, in the lesson “Price multiples: the P/E and its relatives”: P/E, earnings yield, PEG, P/B, P/S, dividend yield and payout, and what a multiple does not tell you.
Related terms
- FCF yieldFree cash flow ÷ market cap: the cash the business generates each year as a share of the equity price; the inverse of price to free cash flow.
- P/BPrice ÷ book value (shareholders’ equity) per share.
- P/E ratioShare price ÷ earnings per share: how many dollars the market pays for $1 of annual profit, or how many years of current profit you pay for the stock.
- P/S ratioMarket cap ÷ annual revenue (equivalently price ÷ sales per share): what the market pays per dollar of sales.
- Payout ratioDividends ÷ net income (or dividend per share ÷ earnings per share): the share of earnings handed to shareholders as cash.
- PEG ratioThe price-to-earnings ratio divided by the expected yearly growth rate of earnings per share, in percent, to adjust the multiple for growth.