Earnings yield
Earnings yield is the PE ratio turned upside down: the profit a company earns per year as a percentage of its share price. It lets you compare a stock directly with a bond or a fixed deposit.
Formula
Earnings yield
Earnings Yield (%) = EPS ÷ Share Price × 100
From PE
Earnings Yield (%) = 1 ÷ PE × 100
Benchmark: Compare with the fixed deposit rate and the 10-year government bond yield
Reading the number
A PE of 70 is hard to feel. An earnings yield of about 1.4 percent is not: it means that for every ₹100 of share price, the company currently earns ₹1.40 a year. Set that against a fixed deposit paying 6.5 to 7 percent and the question becomes concrete. You are accepting a lower yield today in exchange for growth. The faster the profit grows, the sooner the yield on your original price catches up and overtakes the deposit.
That is why earnings yield is best read together with profit growth, exactly as the PEG ratio does from the other direction.
Indian example
Related ratios
Glossary terms
From the research
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