Valuation
Earnings Yield
Earnings yield flips the P/E ratio so profit is expressed as a percentage of the price you pay.
Investors who think in yields — bond coupons, dividend yields, savings rates — find P/E awkward. Earnings yield turns it around. A P/E of 20 is an earnings yield of 5%. You can then set that 5% next to a Treasury yield and ask whether the extra risk of owning the business is paid for.
It is still an accounting yield, not cash in your pocket. The company may reinvest every dollar. Compare earnings yield with free-cash-flow yield and dividend yield to see how much of the profit is available, paid out, or plowed back.
Formula
Earnings yield = Earnings per share ÷ share price = 1 ÷ P/E
Live example
Apple Inc. (AAPL) last printed at $345.33 with a market cap of $5.04T. Apply the formula on this page to that live price. Where the quote is missing an input, the stock page's financials are the next place to read it.
Related
P/E Ratio · Free Cash Flow Yield · Dividend Yield
See it on a list: best stocks · screener
Questions
Is a higher earnings yield better?
A higher yield means you pay less per dollar of earnings. It is the same statement as a lower P/E, with the same traps.
How does it relate to the Fed model?
The Fed model compares the market earnings yield with the 10-year Treasury yield. It is a rough relative-value sketch, not a timing tool.