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Earnings Yield Calculator
Calculate a stock's earnings yield and compare it side-by-side with the 10-year Treasury. The earnings yield spread — the "Fed Model" — tells you whether stocks are cheap relative to bonds.
Inputs
Results
Earnings Yield
6.00%
P/E of 16.7
Fed Model — stock vs. bond
The stock's earnings yield beats the 10-year Treasury by 1.70 points — equities look cheap relative to bonds on this measure.
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Formula Breakdown
Earnings Yield = EPS ÷ Price × 100
EPS$4.50
Price$75.00
Earnings Yield$4.50 ÷ $75.00 × 100 = 6.00%
P/E (inverse)$75.00 ÷ $4.50 = 16.7x
Understanding earnings yield
Earnings yield is the P/E flipped over
Earnings yield is simply earnings per share divided by price — the inverse of the P/E ratio. A stock trading at 20× earnings has a 5% earnings yield; one at 10× has a 10% yield. Expressing valuation as a yield lets you compare a stock directly against a bond, because both are now quoted in the same unit: percent per year.
That reframing is the whole point. A P/E of 18 means little on its own, but a 5.6% earnings yield sitting next to a 4.3% Treasury is an immediate, apples-to-apples read on relative value.
The Fed Model and the spread
The Fed Model compares the market's earnings yield to the 10-year Treasury yield. When earnings yield exceeds the bond yield, equities are arguably cheap — you're paid more to take equity risk than to sit in risk-free bonds. The earnings yield spread (earnings yield − bond yield) makes this a single number.
A positive spread favors stocks; a negative one favors bonds. The framework appears in the CFA curriculum and analyst reports, though it is a relative-value gauge, not a precise timing signal.
Why compare to the 10-year Treasury
The 10-year Treasury is the market's reference risk-free rate — the return you can lock in without taking on business or credit risk. Every equity has to clear that hurdle to be worth owning. When the risk-free rate rises, the same earnings yield becomes less attractive, which is why the calculator lets you edit the Treasury yield to today's level.
This is also the intuition behind a discount rate: a higher risk-free rate raises the cost of capital and pressures every valuation multiple.
Where earnings yield falls short
Earnings yield uses a single year of accounting earnings, so it says nothing about growth, cyclicality, or earnings quality. A cheap-looking 12% earnings yield can reflect a value trap whose earnings are about to fall. Treat it as a starting screen, then confirm with a cash-flow-based method.
For a forward-looking view that accounts for growth, run a full discounted cash flow valuation rather than relying on a single-year yield.
How to use this calculator
Enter annual EPS
Use trailing-twelve-month diluted EPS from the latest income statement. Stick to GAAP EPS unless you know exactly what an adjusted figure leaves out.
Enter the stock price
The current market price per share. Earnings yield falls as the price rises — a more expensive stock returns less earnings per dollar invested.
Set the Treasury yield
Update the 10-year Treasury yield to today's level so the Fed Model spread reflects the current risk-free rate.
Read the spread
A positive spread means the stock out-yields bonds (Stocks Attractive); a negative one means bonds win (Bonds Attractive). Within ±1% is roughly fair.
Frequently asked questions
What is earnings yield?
Earnings yield is earnings per share divided by stock price, expressed as a percentage — the inverse of the P/E ratio. It shows how much a company earns relative to its share price.
What is a good earnings yield?
Earnings yield above the current 10-year Treasury yield suggests stocks offer better value than bonds. A spread of 2%+ has historically signaled an attractive entry point for equities.
How does earnings yield differ from dividend yield?
Dividend yield measures cash dividends paid. Earnings yield measures total earnings per share — including retained earnings the company reinvests. Earnings yield is typically higher because companies pay out only a portion of earnings as dividends.
How is earnings yield related to the P/E ratio?
Earnings yield is the reciprocal of the P/E ratio. A P/E of 20 is a 5% earnings yield (1 ÷ 20); a P/E of 10 is a 10% yield. Both describe the same relationship between price and earnings, just from opposite directions.
Does a high earnings yield always mean a stock is cheap?
No. A single year of earnings ignores growth, cyclicality, and earnings quality. A very high earnings yield can signal a value trap whose profits are set to decline. Use it as a screen, then confirm with a discounted cash flow valuation.
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