Earnings yield is the quotient of earnings per share divided by the share price. It is the reciprocal of the P/E ratio.
The earnings yield is quoted as a percentage, allowing an easy comparison to going bond rates.
What is Earnings Yield? It’s an estimate interest rate, that you may earn from holding a stock, assuming the company’s earnings do not grow in the future. A stock with low P/E Ratio will have high Earnings Yield and vice-versa.
What is the Formula to Calculate Earnings Yield? Earnings Yield = 1 ÷ P/E Ratio or ( EPS ÷ Price ) * 100
How Earnings Yield is Useful? Earnings yield can be compared with other asset classes, like fixed deposits, bonds, etc… This comparison can help in selecting, the best investment option at that point in time. The interest on fixed deposit is fixed, but for a company’s earnings, sky is the limit. How to Spot Bargains using Earnings Yield? A bargain arises, when Earnings Yield of stock is higher, than the prevailing interest rate from other asset classes.
Read more about Earnings Yield: Applications, Adjusted Versions
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