Earnings Yield Calculator
Calculate a stock's earnings yield — the percentage of earnings relative to its price — to compare equity returns against bond yields. Used by value investors to gauge attractiveness.
About this calculator
Earnings yield is the inverse of the price-to-earnings (P/E) ratio, expressed as a percentage. The formula is: Earnings Yield = (earnings_per_share / stock_price) × 100. It tells you how many cents of earnings you receive for every dollar invested in the stock. A higher earnings yield generally indicates better value, all else equal. Investors often compare earnings yield to the 10-year Treasury bond yield: if the earnings yield significantly exceeds bond yields, equities may be more attractive. For instance, a stock with a P/E of 20 has an earnings yield of 5% (1/20 = 0.05). The Fed Model famously uses this comparison to assess whether the stock market is over- or undervalued relative to bonds.
How to use
Suppose a company reports earnings per share (EPS) of $4.50 and its stock currently trades at $90. Enter $4.50 in the Earnings per Share field and $90 in the Stock Price field. The calculator computes: Earnings Yield = ($4.50 / $90) × 100 = 5.0%. If the current 10-year Treasury yield is 4.2%, this stock offers a 0.8 percentage point premium over risk-free bonds, which many value investors would consider a modest but acceptable equity risk premium.
Frequently asked questions
How does earnings yield differ from the P/E ratio and which is more useful?
Earnings yield and P/E ratio convey the same information but in different formats. P/E = stock_price / EPS, while earnings yield = (EPS / stock_price) × 100. Earnings yield is more useful for direct comparisons with fixed-income returns, because it is expressed as a percentage just like a bond yield. For example, saying a stock has an earnings yield of 6% versus a bond yield of 4% is more intuitive than comparing a P/E of 16.7 to a bond yield. Both metrics have the same underlying limitation: they rely on current or trailing earnings, which may not reflect future profitability.
What is a good earnings yield for a stock investment?
There is no universal 'good' earnings yield — it depends on the current interest rate environment and the investor's risk tolerance. As a benchmark, many investors compare earnings yield to the 10-year government bond yield. If the earnings yield is higher, stocks appear relatively attractive; if lower, bonds may offer better risk-adjusted returns. Historically, an earnings yield above 5–7% has been associated with value investing opportunities in large-cap markets, though growth stocks can trade at much lower yields due to high expected earnings growth.
Why do value investors use earnings yield instead of the P/E ratio?
Value investors, particularly those influenced by Benjamin Graham and Warren Buffett, prefer earnings yield because it frames stock returns in the same language as bond returns, making asset allocation comparisons straightforward. A P/E ratio of 25 is less intuitively comparable to a 4% bond yield than an earnings yield of 4%. Earnings yield also makes it easier to rank a portfolio of stocks by return potential at a glance. Additionally, when P/E ratios are negative (the company is losing money), earnings yield is also negative, making the unattractiveness of the investment immediately obvious.