Earnings Yield is the inverse of P/E ratio (EPS / Price), expressed as a percentage. It shows how much you earn per dollar invested and can be compared to bond yields to assess relative value.
Earnings Yield vs P/E Ratio
Earnings Yield
2.93%
EPS ÷ Price
P/E Ratio
34.2
Price ÷ EPS
Formula: Earnings Yield = (EPS / Price) × 100
Earnings Yield is simply the inverse of P/E. A P/E of 20 equals a 5% earnings yield.
Why use Earnings Yield?
Easier to compare with bond yields (both are percentages)
Higher is better (unlike P/E where lower is often better)
Works better for comparing stocks to fixed income
Used in value investing strategies like the "Magic Formula"