Valuation metrics · Earnings analysis
Earnings Yield: Formula, Calculation, and What It Tells Investors
Earnings yield is the inverse of the P/E ratio — it converts the valuation multiple into a percentage return you can directly compare with bond yields. This guide explains the formula, works through an Apple FY2024 example, benchmarks earnings yield across six sectors, explains the Fed Model comparison, and shows when earnings yield is more useful than P/E.
Earnings yield equals earnings per share divided by stock price, expressed as a percentage. It is the exact inverse of the P/E ratio: a 20x P/E stock has a 5% earnings yield. Investors use it to compare stocks against bond yields — when earnings yield exceeds the 10-year Treasury yield, equities offer a relative value signal.
The Earnings Yield Formula
Earnings yield has two inputs: earnings per share and share price. Because it is the reciprocal of P/E, the two metrics are always convertible into each other.
| Formula | Expression |
|---|---|
| Earnings Yield | EPS ÷ Stock Price × 100 |
| Inverse relationship | Earnings Yield = 1 / P/E Ratio |
| Reverse conversion | P/E Ratio = 1 / Earnings Yield |
The two formulas are mathematically identical and always produce consistent results. A stock trading at 25x P/E has an earnings yield of exactly 4.0% (1/25 = 0.04). A stock with a 6.25% earnings yield implies a P/E of 16x (1/0.0625 = 16). Neither metric carries more information than the other — earnings yield simply expresses that information in a form comparable to fixed-income yields.
Apple Example (FY2024)
Apple (AAPL) is a clean worked example because its fiscal year ends in September and its reported EPS is widely followed. Using FY2024 figures (fiscal year ended September 2024):
Step 1: Gather inputs
- AAPL FY2024 EPS (diluted)
- $6.11
- AAPL share price (year-end)
- ~$226
Step 2: Calculate earnings yield and cross-check with P/E
| Metric | Calculation | Result |
|---|---|---|
| Earnings Yield | $6.11 / $226 × 100 | ~2.7% |
| Implied P/E (cross-check) | 1 / 0.027 or $226 / $6.11 | ~37x |
Apple's 2.7% earnings yield in FY2024 sat well below the 10-year Treasury yield of approximately 4.2% at year-end. Using the Fed Model logic, equities appeared expensive relative to bonds at that level. However, that comparison ignores Apple's growth outlook, capital return program, and the premium investors assign to earnings quality. See the P/E Calculator for a live reading on any ticker.
Earnings Yield by Sector
Earnings yield benchmarks vary significantly across sectors, mirroring the inverse of sector P/E ranges. High-growth sectors have low earnings yields; value-oriented sectors have higher yields. The table below shows typical ranges for large- and mid-cap companies as of 2024-2025.
| Sector | Typical Earnings Yield Range | Implied P/E Range |
|---|---|---|
| Technology | 1.5–3.5% | 29–67x |
| Healthcare | 2.0–4.5% | 22–50x |
| Consumer Discretionary | 2.5–5.0% | 20–40x |
| Industrials | 3.5–6.0% | 17–29x |
| Energy | 5.0–9.0% | 11–20x |
| Financials | 5.0–8.0% | 13–20x |
Technology and Healthcare trade at low earnings yields (high P/E) because investors are paying for future growth. Energy and Financials post higher earnings yields because commodity cycles and interest-rate sensitivity introduce uncertainty that depresses valuations. For a full data set with sub-industry breakdowns, see the Earnings Yield by sector benchmarks page.
Earnings Yield vs Bond Yield: The Fed Model
The most common use of earnings yield is comparing it against the 10-year Treasury yield to assess whether equities are cheap or expensive relative to bonds. This framework is informally called the Fed Model.
How the comparison works:
- Earnings yield > 10-year Treasury yield. Equities are offering more return per dollar than risk-free bonds. Under the Fed Model, this signals that stocks are relatively cheap and may outperform going forward.
- Earnings yield < 10-year Treasury yield. Bonds offer a higher yield than equity earnings. Historically associated with equity market overvaluation or rising rate pressure on valuations.
Limitations of the Fed Model:
- Earnings are risky; bond coupons are not. A Treasury yield is contractual and default-free. Corporate earnings can shrink, disappear, or restate. Comparing the two without a risk premium adjustment understates the hurdle equities must clear.
- EPS growth changes the value proposition. A 3% earnings yield on a company growing EPS at 15% per year is a very different proposition from a 3% earnings yield on a company with flat earnings. The Fed Model ignores growth entirely, making it a blunt instrument for individual stock analysis.
- Inflation distorts both sides. High inflation erodes the real value of fixed bond coupons but also reduces the real value of nominal earnings multiples. The 1970s and 1980s saw very high nominal bond yields alongside compressed P/E multiples for reasons the simple yield spread comparison cannot capture.
When to Use Earnings Yield vs P/E
The two metrics encode identical information but serve different analytical purposes. The choice between them is about what comparison you are trying to make.
| Use earnings yield when… | Use P/E when… |
|---|---|
| Comparing stocks to bonds or preferred equity | Comparing two companies within the same sector |
| Building a cross-asset allocation framework | Anchoring valuation to historical sector multiples |
| Screening for high-yielding value stocks (similar to dividend yield) | Communicating with colleagues using standard industry convention |
| Calculating the equity risk premium over risk-free rates | Pairing with the PEG ratio to adjust for growth rate |
Both metrics break down when earnings are negative — you cannot take the inverse of a negative P/E and get a meaningful yield. For unprofitable companies, use EV/EBITDA, EV/Revenue, or a discounted cash flow approach instead. The P/E ratio guide and the forward P/E guide cover the handling of negative or near-zero earnings in detail.
Calculate P/E and Earnings Yield for Any Stock
The P/E Calculator at Basis Report shows the trailing and forward P/E for any public ticker. Convert to earnings yield instantly: divide 1 by any P/E reading shown.