Earnings Yield

What it is\nEarnings per share divided by share price. Inverse of P/E. A P/E of 20 = 5% earnings yield (1/20 = 0.05).\n\n## Why it's useful\nEarnings yield is in the same units as a bond yield. A stock at 8% earnings yield generates 8 cents of profit per dollar invested per year — directly comparable to a 4% Treasury bond.\n\nBuffett: "Stocks are in essence long-term bonds whose coupons are what the business actually earns." The earnings-yield framing makes that comparison explicit.\n\n## How to use it\n- Earnings yield > 2× risk-free rate = potentially cheap. The "spread" compensates for equity risk.\n- Earnings yield < risk-free rate = the stock is pricing in significant growth. The growth has to actually materialise for the investment to make sense.\n- The S&P 500's earnings yield over time has roughly tracked the 10-year Treasury yield + 3% equity risk premium.\n\n## Variants\n- Owner Earnings Yield = Owner Earnings / Market Cap (Buffett's preferred version)\n- FCF Yield = Free Cash Flow / Market Cap (the cleanest cash-based measure)\n- EBIT Yield = EBIT / Enterprise Value (capital-structure-neutral)