Earnings Yield is the ratio of a company’s earnings to its market value, representing the percentage return an investor receives from current earnings. It is often preferred over the P/E ratio because losses simply produce negative yields rather than undefined values, eliminating missing or non-computable observations (NAs) in quantitative models and cross-sectional rankings. Higher earnings yield values are generally better, indicating cheaper valuation and potentially higher expected returns, while lower values imply a more expensive stock.

All else equal, the lower the ratio the less attractive a company is as an investment, because it means investors are putting money into the company but not receiving a very good return in exchange. A high earnings yield means a company is generating enough cash to satisfy its debt and other obligations, including taxes and dividend payouts.

Earnings yield might not be the best yield ratio for comparing stocks in different industries, because it doesn’t normalize for capital structure, fixed asset investments, and taxes.

Formula

EarnYield = 100 * EPSExclXorTTM / Price