Earnings Yield

How to read it

stockrow divides basic earnings per share for the trailing twelve months by the stock price, giving a percentage. It is the price-to-earnings ratio turned upside down, which makes it easier to set beside interest rates and other yields. It rises when earnings grow or the price falls, and falls when earnings drop or the price climbs. It is worked out for every trading day, from the latest reported figures on or before that day, so it moves with the price and steps when a new quarter’s earnings arrive.

What is typical

Companies the market expects to grow quickly, or whose earnings it trusts, tend to show low yields because their prices are high relative to current profit. Mature, slow-growing or cyclical companies tend to show higher yields. Compare the figure with the median for the company’s sector.

Pitfalls

When a company makes a loss the yield is negative, and unlike a price-to-earnings ratio it still ranks in a sensible order. A one-off gain or charge in the last twelve months can push the yield far from its usual level. Cyclical companies often show their highest yields near the peak of the cycle, just before earnings fall. Quarterly and annual values are the daily value on the first trading day on or after each period end.