Earnings yield
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The earnings per share divided by the market price, expressed as a percentage.
Example 1
GeeCo's share price is 200p.
Its relevant earnings per share for the earnings yield calculation are 12p.
The earnings yield on this basis is:
12 / 200
= 6%
Relationship between earnings yield and price/earnings ratio
The reciprocal of the earnings yield is the price/earnings ratio (PER).
Example 2
GeeCo's share price is 200p.
Its relevant earnings per share (EPS) for earnings yield calculation are 12p.
GeeCo's earnings yield is 6% (= 0.06)
The PER on this basis is the reciprocal of the earnings yield:
1 / 0.06
= 16.7
The PER can also be calculated directly from the share price and EPS as: 200/12 = 16.7.
