The P/E ratio turned upside down — and suddenly comparable to a bond. Enter EPS and share price (or just a P/E) to get the earnings yield, plus an optional bond-yield comparison.
Or start from a P/E, and optionally compare to a bond:
Answer first: earnings yield is the P/E ratio flipped over: EPS ÷ share price, expressed as a percentage. A stock earning $5 per share and trading at $80 has an earnings yield of 6.25% — the same information as a P/E of 16, but in a form you can lay directly beside a bond yield, a savings rate, or inflation. That one flip turns an abstract multiple into a return-like number, which is exactly why value investors love it.
Earnings yield = EPS ÷ price × 100 = 100 ÷ P/E
Example: $5 EPS on an $80 stock → 6.25% earnings yield (P/E 16). A P/E of 25 is a 4% earnings yield; a P/E of 50 is just 2%.
Bonds quote their return as a yield; stocks hide theirs inside a multiple. Converting the P/E to an earnings yield puts both on one scale. If a 10-year government bond pays 4% and a stock’s earnings yield is 6.25%, the stock offers a 2.25-point cushion for taking equity risk — plus the chance that earnings grow, something a bond coupon never does. When earnings yields on major indexes fall below bond yields, stocks are offering less than a guaranteed alternative, a condition that has historically preceded thinner returns.
| P/E ratio | Earnings yield | Feel |
|---|---|---|
| 10x | 10.0% | Cheap — or the market expects trouble |
| 16x | 6.25% | Around long-run market averages |
| 25x | 4.0% | Growth priced in |
| 50x | 2.0% | Paying today for years of future growth |
A bond coupon is contractual; earnings are not. The “yield” here is what the business earns, not what lands in your pocket — companies retain part of it to reinvest, pay some as dividends, and sometimes lose it to bad years. A 12% earnings yield on a company whose profits are about to halve is really a 6% yield wearing a costume. That is why the highest earnings yields in the market often belong to businesses the market has (sometimes correctly) given up on.
Reality check: comparing earnings yield to bond yields — the so-called Fed model — is a rough heuristic, not a law. Inflation, growth and risk premia shift the fair gap over time. Use the spread as context, never as a buy signal on its own. Educational tool only — not financial advice.
See the same stock through other lenses: the P/E calculator, PEG ratio for growth adjustment, the Graham Number for an asset-anchored ceiling, and the bond yield calculator for the other side of the comparison.
Last updated July 2, 2026 · Written by Mustafa Bilgic. Educational only — not financial advice.
Divide earnings per share by the share price (or 100 by the P/E ratio). A $5 EPS on an $80 stock gives a 6.25% earnings yield, equivalent to a P/E of 16.
Compare it to bond yields and inflation rather than a fixed number. An earnings yield well above the 10-year government bond yield offers a cushion for equity risk; one below it means stocks yield less than a safer alternative.
No. Earnings yield uses everything the company earns per share; dividend yield uses only the part paid out as cash. Earnings yield is almost always the higher figure.
Because it reads like a return, making cross-asset comparison natural, and because ranking by earnings yield handles extreme cases more gracefully than ranking by P/E.