The earnings yield is a return measure that compares the net income of a company to its market value. The ratio is calculated by dividing the most recent 12 months net income per share by the current share price.

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