Earnings yield
By Jude Wallis
Earnings yield is earnings per share divided by the share price. It is the price to earnings ratio inverted, which puts a share price on the same scale as a rate.
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Inverting the multiple changes what the number can be compared to. A price to earnings ratio of 20 is a multiple with no natural rival; the same company at a 5 percent earnings yield sits directly beside a bond yield, a savings rate or a cap rate. That is the entire reason the inversion is worth doing.
The caution is that earnings are an accounting measure. Depreciation, one-off charges and working capital swings all sit between reported profit and money a shareholder could actually receive, so a high earnings yield is not by itself distributable cash.
The earnings yield calculator does the inversion and shows both figures. How earnings yield works is the explainer, and the price to earnings ratio is the same relationship written the usual way round.