Term · Valuation
Earnings Yield
In briefThe earnings yield expresses the profit yield and is the reciprocal of the P/E ratio. It makes small caps more comparable with bonds, larger stocks, or peers.
Definition
The earnings yield is the profit yield of a share and equals the reciprocal of the price-earnings ratio.
How it is calculated
Formula. Earnings yield = earnings per share / share price, or net income / market capitalization.
Why it matters for small caps
The metric is relevant for small caps because it makes them more comparable with bonds, larger stocks, or peer groups.
Common misreadings
- A high earnings yield can also stem from cyclical peak earnings, balance-sheet risks, or low market liquidity.
In the process
Frequently asked
What is the earnings yield?
It is a company's profit relative to its market value. It shows how much earnings accrue per euro invested.
How is the earnings yield calculated?
You divide earnings per share by the price, or net income by market capitalization. The result is the reciprocal of the P/E ratio.
Why can a high earnings yield be deceptive?
It can stem from cyclical peak earnings, balance-sheet risks, or low market liquidity. A high figure is therefore not automatically attractive.
Related terms
Sources
Primary
NYU Stern – Aswath Damodaran, Valuation Resources
https://pages.stern.nyu.edu/\~adamodar/
https://pages.stern.nyu.edu/\~adamodar/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.