Earnings Yield: formula and how to read it

Operating profit for each dollar of the whole company. Trailing twelve-month operating income divided by enterprise value. The value half of the Magic Formula; not calculated for banks and insurers.

Stock Meadow groups it under Valuation, and shows it in tables as Earn. yield.

Earnings yield = operating income over the trailing twelve months ÷ enterprise value

A company with $12 million of operating income and an enterprise value of $120 million has an earnings yield of 10%. The numbers are made up for illustration.

A higher earnings yield means more operating profit for the price of the whole business. Because it uses enterprise value, debt is part of the price.

When Stock Meadow ranks stocks, a higher figure scores better.

• It is based on operating income, not net income, so it is not the same as the inverse of the P/E ratio.
• Temporary profit peaks inflate the yield. Cyclical companies often look best just before conditions turn.
• Not calculated for banks and insurers, whose debt and income do not fit the measure.

How Stock Meadow handles gaps. Usually blank when operating income or enterprise value isn't available.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

Fixed-recipe models that score it: Magic Formula.

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

Read about every scoring model on the scoring models page.

• P/E Ratio (Price-to-Earnings): what you pay for each dollar of profit.
• Return on Invested Capital (ROIC): profit made on all money invested in the business.
• EV/EBITDA: whole-company price vs. operating cash earnings.

What is the difference between earnings yield and the P/E ratio?

Earnings yield here is operating income divided by enterprise value, while the P/E ratio is price divided by net earnings per share. Earnings yield includes debt in the price and ignores interest and tax, so the two can disagree.

Is a higher or lower Earn. yield better?

When Stock Meadow ranks stocks, a higher figure scores better. That is a ranking convention, so read Earn. yield alongside other measures and compare similar companies.

Why is Earn. yield blank for some stocks?

It is usually blank when operating income or enterprise value isn't available. Stock Meadow leaves the figure blank rather than guessing it.