Earnings Yield, in its simplest form, is earnings divided by price. It is expressed as a percentage of the investment value and is the reciprocal of the price/earnings (PE ratio).
In other words, earnings yield is the annual earnings of a stock, individual company, or market index compared to the price.
Earnings Yield = Annual Earnings Per Share / Stock Price
or Earnings Yield = Net Income / Market Capitalization
(Note that these calculations will provide the same result.)
Related: What the earnings yield can you tell about the future
Examples of the Earnings Yield Calculation
Earnings Yield of a Stock
Apple (AAPL) earns $9.20 per share, current price is $171
Earnings Yield = $9.20 / $171 = 5.4%
Earnings Yield of a Company
Apple earns $48.4 billion, Market Capitalization is $896 billion.
Earnings Yield = $48.4 billion / 896 billion = 5.4%
Earnings Yield of an Index
The S&P 500 earns $105, the index is $2625.
Earnings Yield = $105 / 2625 = 4.0%
Earnings Yield is the Reciprocal of the PE Ratio
P/E Ratio = Price / Earnings
Earnings Yield = Earnings / Price
The advantage of the earnings yield over the P/E Ratio is that your result is expressed as a percentage that can be compared to other investments.
S&P 500 earns 105, the index is $2625 = 4.0% compared to the 10 Year Treasury Bond Yield = 2.4%