P/E Ratio vs Earnings Yield

Difference Between P/E Ratio and Earnings Yield

The earnings yield is another valuation metric that is simply the inverse of the P/E ratio (the E/P ratio). If you turn the formula around and divide the EPS number by the stock price and multiply by 100, then you get the earnings yield percentage.

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EPS Formula:

For example, a company with a stock price of $20 and an EPS of $1 has a PE ratio of 20 ($20 / $1) and an earnings yield of 5% (($1 / $20) * 100).

When to Use P/E Ratio

If you want to compare the “yield” of different investments, then this may be a more useful number than the PE ratio. For example, you may see that a savings account yields 2%, while a stock you like has an earnings yield of 5% with earnings that are growing each year. Comparing the yields can give you a good idea of which one is a better long-term investment, although you should keep in mind that stocks are also much riskier than a savings account.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.