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Earnings yield

Earnings for every dollar invested, which makes a stock directly comparable to a bond yield. A company losing money has none.

Updated 2026-09-03

How it is calculated

Earnings yield = 1 ÷ trailing P/E

Earnings yield is the P/E ratio turned upside down: profit per share as a percentage of the price. A P/E of 20 is a 5 percent earnings yield.

earnings yield = EPS ÷ price = 1 ÷ P/E

The same information as trailing p/e, expressed as a return.

The inversion is worth doing because it makes the number comparable to things that are also expressed as yields. A stock on a 5 percent earnings yield against a 4.8 percent government bond is a very different proposition from the same stock when the bond pays 1 percent, and the P/E form hides that comparison while the yield form makes it obvious.

This is the same mechanism as the risk-free rate rate moving every valuation on the board at once. When the risk-free return rises, every other yield has to compete with it, and multiples compress across the market without any company doing anything.

See also

  • Trailing P/E — What the market pays today for each dollar the company earned last year.
  • EPS — Profit for the last twelve months divided by the share count. Accounting profit, not cash, which is why Angie values the cash instead.
  • Risk-free rate — The 10-year Treasury yield, standing in for the return available with essentially no risk. Every other rate in the model is built on top of it.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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