Fundamental Glossary / Valuation Ratios
Earnings Yield
Earnings per share divided by price. It is the inverse of the P/E ratio.
Formula
Earnings per share / price per share, or 1 / P/E.
What it means
Earnings yield states the same fact as P/E in income form. A P/E of 20 is an earnings yield of 5%. That makes it easier to set next to a bond yield or a cost of equity.
It is still an accounting yield, not cash in the shareholder's pocket. The company may retain the earnings rather than pay them out.
How to read it
Some investors buy when the earnings yield sits well above a government bond yield, leaving a margin for the extra risk of equity. The comparison only works if the earnings are normalised, not a peak or a trough.
What to watch
Do not treat earnings yield as a promised coupon. Earnings move, and a high yield on trough-quality earnings can disappear. Pair it with the payout and the free-cash-flow yield.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.