Earnings yield
From Wikipedia, the free encyclopedia
Earnings yield is the quotient of earnings per share divided by the share price. It is the reciprocal of the price earnings ratio—the E/P or the EPS.
The earnings yield is quoted as a percentage, allowing an easy comparison to going bond rates.
[edit] Applications
The earnings yield is the relative valuation of a stock, sector, or the whole market compared with bonds. The earnings yield of stocks may be lower than bond yields, as equity investments provide for a share of (potentially) growing earnings, or higher, as equity investments are generally considered to be higher risk.
The earnings yield is also the cost to a publicly traded company of raising expansion capital through the issuance of stock.
[edit] Other uses
Earnings yield is one of the factors discussed in Joel Greenblatt's The Little Book That Beats the Market. However, Greenblatt uses an adjusted earnings yield formula to account for the fact that different companies have different debt levels and tax rates.
