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.
Key Takeaways
- Earnings yield is the ratio of earnings per share to the stock price, while earnings per share is the total earnings divided by the number of outstanding shares.
- Earnings yield measures how much a company earns relative to its stock price, while earnings per share measures how much each share earns.
- Earnings yield can be used to compare the attractiveness of different stocks, while earnings per share can be used to compare the profitability of different companies.
Earnings Yield vs Earnings Per Share
Earnings yield is a financial term that helps an investor understand how much profit they gain from every unit of currency invested in a company’s stock. Earnings per share is a term used to calculate the benefit received by an investor based on each share they have invested, and the value is from the company.
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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.
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.
Comparison Table
| Parameters of Comparison | Earnings 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 by | It is mostly calculated by investors. | It is mostly calculated by companies or organizations. |
| Helps In | It 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. |
| Tax | It generally includes taxes. | It does not include taxes. |
| Indicates | It 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.
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.
Its inverse is represented by PE, which is a ratio calculated by inverting the numerator and denominator of the earnings yield calculation.
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.
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?
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.
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.
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
- Both of these terms have different methods of calculation.
- Earnings yield indicates investor’s profit, whereas earning per share determines that of the company being invested on.
- https://www.sciencedirect.com/science/article/pii/0304405X83900314
- https://www.jstor.org/stable/2490543
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
