DEFINITION of 'Yield On Earning Assets'

The yield on assets is a popular financial solvency ratio that compares a financial institution’s interest income to its earning assets. Yield on earning assets (YEA) indicates how well assets are performing by looking at how much income they bring in. As a measure of effectiveness, yield on assets can be useful for comparing different managers relative to their asset bases.

Managers (or entire businesses) that can generate sizable yield (cash flow) with a small asset base are considered to be more efficient, and likely offer more value.

BREAKING DOWN 'Yield On Earning Assets'

Banks and financial institutions that provide loans and other investment options that offer yields have to strike a balance between the different types of investment vehicles, duration, and markets that it offers loans to. Generally speaking, the higher a company’s loan to asset ratio, the higher its yield on returning assets. This is because higher-yielding investment vehicles bring in more income relative to the amount of money on loan.

High yield on returning assets is an indicator that a company is bringing in a large amount of dividend and investment income from the loans and investments that it makes. This is often the result of good policies, such as ensuring that loans are properly priced, and investments are properly managed, as well as the company’s ability to garner a larger share of the market.

Financial institutions with a low yield on earnings assets are at an increased risk of insolvency, which is the reason the YEA is of interest to regulators. A low ratio means that a company is providing loans that do not perform well since the amount of interest from those loans is approaching the value of the earning assets. Regulators may take this as an indicator that a company’s policies are creating a scenario in which the company will not be able to cover losses, and could thus become insolvent.

Increasing a Low Yield On Assets

Increasing a low YEA often involves a review and restructuring of a company’s policies and approach to risk management, as well as a review of the general operations of how the company chooses which loans to provide to which markets.

Depending on the business or strategy, at times, yield on assets may need to be adjusted for various methods of compiling financial statements. For instance, certain off-balance sheet items could distort reported yield on assets when using financial statements that have not been adjusted.

  1. Breakeven Yield

    The breakeven yield is the yield required to cover the cost of ...
  2. Classified Loan

    A classified loan is any bank loan that is in danger of default.
  3. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  4. Yield Maintenance

    Yield maintenance is a prepayment premium that allows investors ...
  5. Commercial Loan

    A debt-based funding arrangement that a business can set up with ...
  6. Asset Base

    Asset base refers to the underlying assets giving value to a ...
Related Articles
  1. Investing

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  2. Investing

    Yield vs. Total Return: How They Differ

    Understanding yield vs. total return is essential in constructing portfolios that meet income generating needs while providing growth for the future.
  3. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  4. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  5. Investing

    Comparing The P/E, EPS And Earnings Yield

    P/E may be the established standard for valuation purposes, but the earnings yield is especially useful for comparing potential returns across different instruments.
  6. Investing

    4 types of money market yields

    We'll give you four equations to help figure out the yields on your money market investments.
  7. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  8. Investing

    Investing in an Age of Low Interest Rates

    These are the effects of low interest rates and Treasury yields on your investments and financial future.
  9. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  10. Investing

    How to Get More Yield From Your Investments

    Yield seeking investors can boost the amount of income their investments generate through tweaking their portfolio of stocks and bonds.
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  2. Yield vs Interest Rate

    Yield is the dividend or interest investors receive from a security, while interest rates are figures charged by a lender, ... Read Answer >>
  3. What are the advantages and disadvantages of using the total debt to total assets ...

    Learn how the total debt to total assets ratio is beneficial to investors and lenders in assessing the solvency of a company ... Read Answer >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center