Earnings Yield
Inverse of the P/E ratio: trailing or forward EPS divided by current price. Expresses earnings as a yield, directly comparable to bond yields and Treasury rates.
When to use: Use to compare a stock's earnings power against fixed-income alternatives. The 10-year Treasury yield versus the S&P 500 earnings yield (the "Fed model" comparison) is a common cross-asset valuation lens.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EarningsYield | Earnings Yield | Earnings yield (E/P) as a decimal | % |
| EPS | Earnings per Share | Trailing or forward EPS | $ |
| P | Stock Price | Current price per share | $ |
Real-Life Examples
Example 1: S&P 500 at 20× P/E
A stock trades at $100 with $5 of EPS — a P/E of 20.
Given
Step-by-Step
5% earnings yield. Against a 4% 10-year Treasury, the equity offers a 100bp yield premium for the risk of owning earnings versus a guaranteed coupon — modest by historical standards.
Frequently Asked Questions
Yes — exactly. Earnings yield is just the reciprocal of P/E expressed as a percentage. Equivalent information, but framing earnings as a yield makes cross-asset comparison (vs. bonds, vs. cash rates) more natural.
Both are used. Trailing earnings yield reflects what the company actually earned; forward earnings yield uses analyst estimates. Forward is more common in screens; trailing is more conservative.
A 5% earnings yield is comparable to a 5% bond coupon — but with very different cash-flow characteristics. Earnings are not paid out (only the dividend portion is), and they grow over time. The "yield" is more about capital allocation framing than literal cash receipts.