earnings yield


Earnings yield

The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price-earnings ratio. It is the total twelve months earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.

Earnings-Price Ratio

The annual earnings of a security per share at a given time divided into its price per share. It is the inverse of the more common price-earnings ratio. Often, the earnings one uses are trailing 12-month earnings, but some analysts use other forms. The earnings-price ratio is a way to help determine a security's stock valuation, that is, the fair value of a stock in a perfect market. It is also a measure of expected, but not realized, growth. It may be used in place of the price-earnings ratio if, say, there are no earnings (as one cannot divide by zero). It is also called the earnings yield or the earnings capitalization ratio.

earnings yield

See earnings-price ratio.

earnings yield

NET PROFIT after tax per ordinary share (EARNINGS PER SHARE) of a JOINT-STOCK COMPANY for a given ACCOUNTING PERIOD, expressed as a percentage of the current market price per share. For example, if profit after tax was £2 per share and the market price per share was £5 then the earnings yield would be 40%. Earnings yield is the mirror image of the PRICE-EARNINGS RATIO.

Earnings yield depends upon DIVIDEND YIELD and DIVIDEND COVER. For example, if dividend yield was 20% and the dividend was covered twice over then the earnings yield would be 20% x 2 or 40%.

earnings yield

NET PROFIT after tax per ordinary share (EARNINGS PER SHARE) of a JOINT-STOCK COMPANY for a given accounting period, expressed as a percentage of the current market price per share. For example, if profit after tax was £1 per share and the market price per share was £10, then the earnings yield would be 10%. Earnings yield is the mirror image of the PRICE-EARNINGS RATIO.

Earnings yield depends upon DIVIDEND YIELD and DIVIDEND COVER. For example, if dividend yield was 5% and the dividend was covered twice over then the earnings yield would be 5% x 2, or 10%.