 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.

For example:
S&P 500 earns 105, the index is \$2625 = 4.0% compared to the 10 Year Treasury Bond Yield = 2.4%