Difference Between Earnings Yield and Earnings Per Share (With Table)

Both the terms earnings yield and earnings per share can be assumed to be the same as they both refer to the profit or gain made by the investor. However, both these financial terms are related but are not the same in any way. These terms are used especially in reference to stocks and shares.

Earnings Yield vs Earnings Per Share

The difference between earning yield and earning per share is that earning yield is the ratio between earnings received by an investor from each share he invests, divided by the money he will receive if he or she sells the share in the market according to the current available price whereas the numerator required to calculate earnings yield is earning per share.

Earnings Yield is a very basic financial term that is important to understand. It basically helps the investor to understand that how much profit he or she gains with every unit of currency invested in the stock of a company. It also helps one to understand that how much benefit one has for keeping the stock rather than selling it at its most common selling rate in the market.

Earnings per share is the calculation of the benefit received by the investor by each share he or she has invested in. This value is from the company’s point of view rather than that of the investor. However, this value is the main factor that makes an investor invest or not invest his money in the particular company’s share.

Comparison Table Between Earnings Yield and Earnings Per Share

Parameters of ComparisonEarnings Yield Earnings Per Share
Requirement The quantity of earnings per share is required in order to calculate this. It does not have the requirement of Earning Yield in order to be calculated.
Calculated byIt is mostly calculated by investors. It is mostly calculated by companies or organizations.
Helps InIt helps to determine if a particular stock is in a state of being sold or bought.It helps to estimate the benefit of the company with every share owned.
TaxIt generally includes taxes.It does not include taxes.
IndicatesIt helps to indicate whether a stock is undervalued or overvalued.It helps to determine the profit or benefit of the company.

What is Earnings Yield?

The term Earnings Yield is also used as earning price ratio. It is basically a ratio between the benefit earned per share divided by the latest price of the share in the market. The numerator required for the ratio is earnings brought by each share, and the denominator is the current rate of that particular share in the market.

This quantity helps the investor recognize the amount of earning each unit of currency (e.g. 1 dollar) brings to him. It can be calculated in terms of percentage by multiplying the ratio by a hundred. 

One can compare the earnings yield of different companies in order to know the amount of money you gain in every rupee/dollar you invest. Its inverse is represented by PE, which is a ratio calculated by inverting the numerator and denominator of the earnings yield calculation.

This opposite ratio helps the investor know if the earning gives him a benefit equal to that of companies based on the same sector. The current or latest earning yield of a particular stock may rise or fall depending upon its demand in the market or the decision of the company people.

Its higher value indicates that the stock is undervalued, which means the stock is bringing much profit than that compared to its recent price of selling in the market. The increased value of the earning yield indicates the perfect time of buying a particular stock, whereas it is lowering (that is, overvalued stock) indicates the perfect time for its sale.

What is Earnings Per Share?

The term is shortened to EPS. It is calculated by including the profit and the dividends and excluding the tax to be paid divided by the number of basic or ordinary shares. It also acts as a numerator in order to calculate the earnings yield for the investor.

This term helps to understand the amount of profit the company is gaining per share after the payment of the tax. The higher value of the term indicates more number of investments by the investors as the main criteria for investment is determined by estimating the amount of profit an organization is getting from each of its shares.

Its scaling is from one to ninety-nine, where ninety-nine is the maximum amount of profit gained symbol. The higher the term value, the more are the number of investors as all investors look for profit, and earning per share is an important criterion for the decision relating to the investment.

Main Differences Between Earnings Yield and Earnings Per Share

  1. Earnings yield can only be calculated if earning per share of a company is known, whereas earning per share does not need earnings yield to be calculated for its determination.
  2. Earnings yield is mostly calculated by investors, whereas earning per share is calculated mostly by companies and organizations in order to attract investors for its organization.
  3. Earnings yield is calculated in order to determine if a share should be bought or sold depending on the value, whereas and Earnings per share is a parameter for the determination of the profit.
  4. Both of these terms have different methods of calculation.
  5. Earnings yield indicates investor’s profit, whereas earning per share determines that of the company being invested on.

Conclusion

It can be hence concluded that both these terms equally play important roles when it comes to understanding the stock market. One should understand both these quantities and their indication in order to invest accurately and gain profits in the long run. The term earnings yield and its latest value can help one to find out whether to sell or buy a particular stock, whereas the term earnings per share help to find profit-making companies in order to invest in good ones.

References

  1. https://www.sciencedirect.com/science/article/pii/0304405X83900314
  2. https://www.jstor.org/stable/2490543
x
2D vs 3D