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P/E vs earnings yield

Published August 17, 2026

P/E is price divided by earnings per share. Earnings yield is EPS divided by price, which is 1 over that multiple. A $50 share on $2.50 of earnings is a P/E of 20 and a 5 percent yield. Sorting by P/E low to high is the same order as sorting by yield high to low.

	P/E	Earnings yield
Formula	Price / EPS.	EPS / price, which equals 1 / P/E.
Teaching sheet	$50 / $2.50 = 20 times. Market cap $5,000,000,000.	$2.50 / $50 = 5 percent. Same $5,000,000,000 over $250,000,000 of earnings.
When EPS doubles	P/E falls to 10 on the still $50 share.	Yield rises to 10 percent. The share did not get cheaper. The year got more profitable.
A smaller firm	An $80 share on $2.50 of EPS with 50,000,000 shares is 32 times on $4,000,000,000 of market cap.	The yield is 3.125 percent on $125,000,000 of earnings. Yield hides scale the same way P/E does.
What it is not	A bargain screen. A low P/E can be peak earnings that will not repeat.	A dividend. A firm can earn 5 percent of price and pay none of it out.
When it stops	When EPS is zero or negative the multiple is not useful.	The same case. Dividing a price by a loss does not produce a cash rate.

One identity, two writings

P/E of 20 is a 5 percent earnings yield, because $1/20 = 0.05$ . Hold the $50 price and raise EPS to $5.00 and P/E falls to 10 while the yield rises to 10 percent. Market cap is still $5,000,000,000. Total earnings are now $500,000,000. The share did not get cheaper.

How the P/E ratio works owns the multiple. How earnings yield works owns the reciprocal. How earnings per share works owns the dollar in the middle. The price to earnings calculator is both routes: price over EPS, and market capitalisation over total earnings.

A dividend is cash paid. Earnings yield is profit over price. They share the word yield and they are not the same object.

Cheap multiple, high yield, same trap

Sorting a list by P/E low to high is the same order as sorting by earnings yield high to low. Neither ranking is a bargain screen on its own. A distressed name can print a huge yield because the price collapsed faster than trailing EPS.

The third sheet, an $80 share on 50,000,000 shares, is a P/E of 32 and a 3.125 percent yield on a $4,000,000,000 firm. That is a different object from the first sheet. Trailing against forward P/E is the year in the denominator. This is educational material, not financial advice.

Worked examples

A \$50 share on \$2.50 of earnings

The share price is $50, EPS is $2.50, and 100,000,000 shares are outstanding. What is P/E, and what is market cap?

P/E is price over EPS: $50 / 2.50 = 20$ .
Market cap: $50 \times 100000000 = 5000000000$ , so $5,000,000,000.
Total earnings: $2.50 \times 100000000 = 250000000$ , so $250,000,000.
The same P/E from the totals: $5000000000 / 250000000 = 20$ .
Earnings yield is $1 / 20 = 0.05$ , 5 percent.

P/E is 20. Market cap is $5,000,000,000. Total earnings are $250,000,000. Earnings yield is 5 percent.

The same price on \$5.00 of earnings

Keep the $50 price and 100,000,000 shares. EPS is now $5.00. What is P/E?

P/E: $50 / 5 = 10$ .
Market cap is still $5,000,000,000.
Total earnings: $5 \times 100000000 = 500000000$ , so $500,000,000.
Yield is $1 / 10 = 0.10$ , 10 percent.

P/E falls to 10. Market cap is still $5,000,000,000. Earnings are $500,000,000. Earnings yield is 10 percent.

An \$80 share on 50,000,000 shares

Price is $80, EPS is still $2.50, and 50,000,000 shares are outstanding. What is P/E, and what is market cap?

P/E: $80 / 2.50 = 32$ .
Market cap: $80 \times 50000000 = 4000000000$ , so $4,000,000,000.
Total earnings: $2.50 \times 50000000 = 125000000$ , so $125,000,000.
Earnings yield: $1 / 32 = 0.03125$ , 3.125 percent.

P/E is 32. Market cap is $4,000,000,000. Total earnings are $125,000,000. Earnings yield is 3.125 percent. The ratio hid the scale.

Common questions

Is a 5 percent earnings yield a 5 percent dividend?

No. It is profit over price. A firm can earn 5 percent of price and pay none of it out.

Why quote both?

Some screens speak in multiples, some in yields. They are one identity. A 20 times P/E is a 5 percent yield, always, on the same EPS.

Trailing or forward?

Whichever EPS you type. Mixing them in a table is how one firm looks like two.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.