Earnings Yield

Filed Under » , , ,
Dictionary Says

Definition of 'Earnings Yield'

The earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company.

The earnings yield is used by many investment managers to determine optimal asset allocations.
Investopedia Says

Investopedia explains 'Earnings Yield'

Money managers often compare the earnings yield of a broad market index (such as the S&P 500) to prevailing interest rates, such as the current 10-year Treasury yield. If the earnings yield is less than the rate of the 10-year Treasury yield, stocks as a whole may be considered overvalued. If the earnings yield is higher, stocks may considered undervalued relative to bonds.

Economic theory suggests that investors in equities should demand an extra risk premium of several percentage points above prevailing risk-free rates (such as T-bills) in their earnings yield to compensate them for the higher risk of owning stocks over bonds and other asset classes.

Articles Of Interest

  1.

    Breaking Down The Fed Model

    Learn what pundits mean when they say that stocks are undervalued according to the Fed model.

  2. How To Evaluate The Quality Of EPS

    Companies can manipulate their numbers, so you need to learn how to determine the accuracy of EPS.

  3. Projected Returns: Honing The Craft

    Find out how to forecast long-term returns on the three major asset classes.

  4. The P/E Ratio: A Good Market-Timing Indicator

    Check out the returns this newer technical analysis tool would've yielded over the period from 1920 to 2003.

  5. Understanding The P/E Ratio

    Learn what the price/earnings ratio really means and how you should use it to value companies.

  6. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  7. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.

  8. Top 4 Most Scandalous Insider Trading Debacles

    Here we look at some of the landmark incidents of insider trading.

  9. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.

  10. Perpetual Bonds: An Overview

    A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center