The
earnings yield of a
company can be calculated
by dividing the
earnings per share (
EPS)
by the current
market price of the
share.
The result can be multiplied by 100 to make a
percentage,
which can then be compared to
interest rates and yields
of other
investments. Earnings yield is the inverse
of the
Price to earnings ratio (
PER).
For
example, suppose company XYZ has a market price of
210 cents per share, and
earnings per share of 15 cents
per
share, the earnings yield would be:
EY = EPS / PRICE
= 15 / 210
= 0.0714
= 7.14%
A higher earnings yield is better,
ceteris paribus.