Earnings yield ratio is an effective restatement of price earnings ratio. It shows earnings per share as a percentage of the market value of the ordinary share. It is arrived at by dividing the earnings per share (EPS) for the last 12 months by the current market value of the share and multiplying the result by 100.
If a company has earnings per share (EPS) ratio of 2.8 and its shares are traded in the market at the rate of $56 per share, its earnings yield ratio may be computed as follows:
Earnings yield ratio = (2.8/56) × 100
The earnings yield ratio is 5% which means the company’s earnings per share during the last 12 months is 5% of the current market value of its ordinary share.