Earnings Yield

Earnings Yield : It is the net profit earning of a company that is divided by its market price of total shares. It’s is quite different from the terminology “dividend yield” which concerns with solely distributed profits.
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Earnings Yield can also be called an estimate of the company’s interest rate that one earns from holding a company’s stocks.  A growing company’s Earnings Yield will generally be low as taking into account its estimated future profits. Contrarily, high earnings yield signifies falling prices of market shares indicating poor growth.  Earnings Yield is used by financial experts to decide on most favourable asset allocations.

It can be easily used to compare earnings among stocks and bonds. Earnings Yield of equities is comparatively higher than risk free treasury bonds. The formula to calculate Earnings yield is Annual Earnings per share divided by stock price. Basically, Earnings yield is used to evaluate stocks and will be symbolic of ROI in a company’s stock, but one won’t receive cash on it unlike dividends.

Edited and Updated 15th February 2014

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