Stock Earnings Yield Calculator

Stock with P/E 20: earnings yield = 1/20 = 5%. Easy comparison to bond yields. When stock earnings yield exceeds bond yield, equities relatively attractive; below, bonds favoured. 'Fed model' uses this comparison.

Quick example

With p/e ratio of 20, the result is 5.00%. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Why investors run this

Most people's intuition for compounding is wrong — not because the math is hard, but because linear thinking doesn't account for curves. Running numbers through a calculator like this one is the cheapest way to recalibrate that intuition before making an irreversible decision about contribution rate, asset mix, or retirement age.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.

Where to go next

This calculation rarely sits alone in a planning exercise. If you're running these numbers, you'll probably also want the price to earnings calculator, the equity return calculator, and the margin of safety calculator — each one answers a different question in the same territory. Treating them as a set rather than in isolation usually produces a more honest picture.

Worked example

Suppose you're comparing two investment opportunities. A stock has a P/E ratio of 25, which produces an earnings yield of 4.00%. A bond fund currently yields 4.50%. The earnings yield shows that the stock generates 4% in annual earnings relative to its price, while the bond generates 4.50%. From a yield perspective alone, the bond appears to offer more income per unit of capital deployed. However, earnings yield does not account for future growth of earnings, reinvestment potential, or the different risk profiles of equities and fixed income — it is a snapshot of current valuation only.

When this metric matters

• Comparing relative attractiveness of stocks within the same sector or industry
• Screening for stocks trading at historically low or high valuation levels
• Making a rough comparison between equity yields and fixed-income yields to assess allocation
• Identifying periods when earnings have moved sharply but share price has not yet adjusted

What the result shows and does not show

Earnings yield shows the annual earnings per unit of share price in percentage terms. It captures valuation relative to current reported earnings only. It does not account for earnings growth trajectory, dividend policy, capital allocation efficiency, balance sheet strength, competitive positioning, or changes in market sentiment. A high earnings yield may indicate undervaluation, or it may reflect deteriorating business fundamentals. A low earnings yield may signal an overpriced stock, or it may reflect justified premium valuations for high-growth businesses. The metric is descriptive, not predictive.

Educational illustration only. This calculator models the mathematical relationship between P/E ratio and earnings yield. Results are for educational and comparative purposes and do not constitute analysis, advice, or a basis for investment decisions.