Earnings yield is a financial analysis metric that measures the amount of profit a company generates per unit of its share price.

Earnings yield is a financial analysis metric that measures the amount of profit a company generates per unit of its share price. It is calculated by dividing the company’s earnings per share over the past 12 months—EPS TTM—by the current share price. This shows how much earnings an investor receives for each dollar invested in the stock.

For example, an earnings yield of 8% means that each $1 of share price generates $0.08 in earnings. In practice, earnings yield is commonly used to assess whether a stock is overvalued or undervalued. A lower earnings yield may indicate that a stock is overvalued, while a higher earnings yield may suggest that it is undervalued.

As shown in the formula, earnings yield is numerically equal to the inverse of the price-to-earnings ratio (P/E ratio). The P/E ratio is calculated by dividing the share price by earnings per share, so the two metrics have opposite interpretations.

Earnings yield represents the amount of earnings an investor can obtain from each dollar invested in a stock, while the P/E ratio represents the amount an investor must pay for each dollar of earnings.