Free Earnings Yield Calculator
Calculate the earnings yield (the inverse of the P/E) and the equity risk premium over the 10-year Treasury yield. The bond-versus-stock comparison.
Implied P/E: 20.0x
Equity risk premium over the risk-free rate: 1.00%. Equities are paying you a premium over a government bond here.
What the earnings yield tells you
The earnings yield is the P/E turned upside down: earnings per share divided by price. A P/E of 20 becomes an earnings yield of 5%. The advantage of reading it this way is that a yield can be compared directly to a bond yield, which a P/E cannot. That single comparison, stock earnings yield against the 10-year Treasury, is one of the most useful gauges of whether equities are being priced generously or stingily.
The equity risk premium
Subtract the risk-free rate from the earnings yield and you have a rough equity risk premium: the extra return you are being paid to hold a stock rather than a government bond. When a 10-year bond yields 5% and a stock's earnings yield is 4%, the stock offers less income certainty than the bond, with more risk. When the 10-year yields 2% and the earnings yield is 6%, equities are offering a meaningful premium. The gap is the number that matters.
How to use this calculator
- Enter earnings per share and the current price to get the earnings yield and the implied P/E.
- Enter the 10-year Treasury yield to see the equity risk premium, the spread between the two.
- Read the premium as a relative gauge over time and across the market, not as a precise valuation.
Assumptions and limits
The earnings yield uses accounting earnings, so the same cautions as the P/E apply: stress-test the earnings figure, prefer through-cycle earnings to a single peak or trough year, and remember that a high yield can signal a value trap rather than a bargain. The earnings yield works best as a market-level and relative tool, read alongside the quality and growth of the earnings behind it.
Related calculators
- FCF yield calculator — the same comparison on a cash basis, which is harder to manage than accounting earnings.
- PEG ratio calculator — put the multiple in the context of expected growth.
Frequently asked questions
- What is the earnings yield?
- The earnings yield is earnings per share divided by the share price, the inverse of the price-to-earnings ratio. A P/E of 20 is an earnings yield of 5 percent. Expressing the multiple as a yield makes it directly comparable to bond yields, which is its main advantage over the P/E.
- What is the equity risk premium?
- The equity risk premium is the extra return equities offer over a risk-free government bond. A simple version compares a stock's earnings yield to the 10-year Treasury yield: if the earnings yield is 6 percent and the Treasury yields 4 percent, the premium is 2 percent. It is the compensation you are getting for taking equity risk instead of holding a bond.
- How do I use the earnings yield in practice?
- Compare it to the 10-year Treasury yield. When the earnings yield sits well above the risk-free rate, equities are offering a meaningful premium. When the gap is thin or negative, you are taking equity risk for little extra reward. The comparison is most useful at the index level and as a relative gauge over time.
- Is a high earnings yield always good?
- No. A high earnings yield can reflect a cheap, sound business, or earnings that are about to fall. A low earnings yield can reflect an overpriced stock, or a high-quality compounder whose earnings will grow into the price. The yield is a starting point for investigation, not a verdict, and it should be read alongside earnings quality and growth.
This calculator is for education and research only. It is not investment advice and it does not recommend buying or selling any security. The output depends entirely on the assumptions you enter.