Calculator Inputs
Use the direct method when EPS is already known. Use the derived method when you want EPS calculated from net income, preferred dividends, and diluted shares.
Formula Used
Earnings yield is the percentage of company earnings generated for each unit of share price. It is the inverse of the P/E ratio and can help compare stock valuation with bond yields, hurdle rates, or internal return targets.
How to Use This Calculator
- Choose whether you already know EPS or want it derived.
- Enter the current market price per share.
- Provide EPS directly, or enter income, dividends, and diluted shares.
- Add an expected EPS growth rate for a forward view.
- Enter a benchmark yield to measure relative attractiveness.
- Set your target earnings yield to estimate fair value.
- Add a margin of safety to produce a more conservative entry price.
- Press the calculate button to view results, graph, and export options.
Example Data Table
| Company | Market Price | EPS | Earnings Yield | Target Yield | Fair Price |
|---|---|---|---|---|---|
| Alpha Capital | 40.00 | 4.00 | 10.00% | 8.00% | 50.00 |
| Blue River Holdings | 85.00 | 5.95 | 7.00% | 8.00% | 74.38 |
| Crescent Value Fund | 28.00 | 1.40 | 5.00% | 6.50% | 21.54 |
Frequently Asked Questions
1. What does earnings yield tell me?
It shows the percentage of earnings generated for each unit of stock price. Investors often use it to compare stock valuation with bond yields, return hurdles, or other stocks.
2. How is earnings yield different from the P/E ratio?
Earnings yield is simply the inverse of P/E. P/E shows how many times earnings investors pay, while earnings yield shows the earnings return percentage implied by the price.
3. Is a higher earnings yield always better?
Not always. A high yield may reflect weak earnings quality, falling profits, or market risk. It is best interpreted alongside balance sheet strength, growth expectations, and industry conditions.
4. Why compare earnings yield with a benchmark yield?
A benchmark helps judge relative attractiveness. If a stock’s earnings yield meaningfully exceeds your benchmark, it may offer a stronger return case, assuming earnings are dependable.
5. When should I use derived EPS?
Use derived EPS when you have company financial statement inputs but not the final EPS figure. The calculator derives EPS from net income, preferred dividends, and diluted shares.
6. What is the fair price at target yield?
It is the share price that would give you your chosen earnings yield hurdle. If the current price is below that level, the stock may appear more attractive on this measure.
7. Why add a margin of safety?
A margin of safety lowers your acceptable entry price to create room for uncertainty. It can help protect against earnings surprises, estimation error, or shifting market sentiment.
8. Can I use earnings yield for loss-making companies?
You can calculate it, but interpretation becomes weak when earnings are zero or negative. In those cases, cash flow, asset value, and turnaround analysis are often more useful.