{"id":19956,"date":"2021-08-19T16:06:26","date_gmt":"2021-08-19T16:06:26","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=19956"},"modified":"2026-03-19T17:34:45","modified_gmt":"2026-03-19T17:34:45","slug":"earnings-yield","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/","title":{"rendered":"Earnings Yield"},"content":{"rendered":"<script type=\"application\/ld+json\">\r\n{\r\n  \"@context\": \"https:\/\/schema.org\",\r\n  \"@type\": \"QAPage\",\r\n  \"mainEntity\": {\r\n    \"@type\": \"Question\",\r\n    \"name\": \"Reason for using earnings yield instead of P\/E ratio\",\r\n    \"text\": \"Which of the following is most likely a reason for using earnings yield?\\n\\nA. Abnormally high prices.\\n\\nB. Supernormal earnings.\\n\\nC. Meaningless negative P\/E ratios due to negative earnings.\",\r\n    \"answerCount\": 1,\r\n    \"acceptedAnswer\": {\r\n      \"@type\": \"Answer\",\r\n      \"text\": \"The correct answer is C.\\n\\nEarnings yield is useful when P\/E ratios become negative or meaningless due to negative earnings. Ranking by earnings yield allows proper comparison of securities, ensuring that the most costly securities (with negative or zero earnings) are correctly identified.\\n\\nA is incorrect. High stock prices alone do not justify using earnings yield.\\n\\nB is incorrect. Supernormal earnings are not a reason for preferring earnings yield over the P\/E ratio.\"\r\n    }\r\n  }\r\n}\r\n<\/script>\r\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/0kMmbenpFuo\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><\/iframe><\/p>\r\n\r\n<p>Using the P\/E ratio in-stock selection involves ranking stocks from highest value to the lowest. However, ranking zero and negative P\/Es would rank them below the lowest positive P\/E when they are actually the most costly.<\/p>\r\n<p>A solution for this is to use an inverse price-to-earnings ratio. This inverse is earnings to price (E\/P), known as the earnings yield.<\/p>\r\n<p>Ranking by earnings yield from highest to lowest would correctly rank securities from cheapest to most costly in terms of earnings one unit of currency buys.\u00a0<\/p>\r\n<blockquote>\r\n<h2>Question<\/h2>\r\n<p>Which of the following is <em>most likely<\/em> a reason for using earnings yield?<\/p>\r\n<ol style=\"list-style-type: upper-alpha;\">\r\n\t<li>Abnormally high prices.<\/li>\r\n\t<li>Supernormal earnings.<\/li>\r\n\t<li>Meaningless negative P\/E ratios due to negative earnings.<\/li>\r\n<\/ol>\r\n<p><strong>The correct answer is C.\u00a0<\/strong><\/p>\r\n<p>Earnings yield is used because ranking zero and negative P\/Es would rank them below the lowest positive P\/E when they are actually the most costly. Ranking by earnings yield from highest to lowest would correctly rank securities from cheapest to most costly in terms of earnings one unit of currency buys.\u00a0<\/p>\r\n<p><strong>A is incorrect.\u00a0<\/strong>Abnormally high stock prices are not a reason for using earnings yield over price to earnings ratio.<\/p>\r\n<p><strong>B is incorrect.\u00a0<\/strong>Supernormal earnings are not a reason for using earnings yield in stock selection.<\/p>\r\n<\/blockquote>\r\n<p>Reading 25: Market-Based Valuation: Price and Enterprise Value Multiples<\/p>\r\n<p><em>LOS 25 (f) Explain and justify the use of earnings yield (E\/P).<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>\ufeff\ufeff Using the P\/E ratio in-stock selection involves ranking stocks from highest value to the lowest. However, ranking zero and negative P\/Es would rank them below the lowest positive P\/E when they are actually the most costly. A solution for&#8230;<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,401],"tags":[216,480,402,474],"class_list":["post-19956","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-equity-valuation","tag-cfa-level-2","tag-earnings-yield","tag-equity-valuation","tag-reading-29-market-based-valuation","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes<\/title>\n<meta name=\"description\" content=\"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"og:description\" content=\"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\" \/>\n<meta property=\"og:site_name\" content=\"CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2021-08-19T16:06:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-19T17:34:45+00:00\" \/>\n<meta name=\"author\" content=\"Irene R\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Irene R\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\"},\"author\":{\"name\":\"Irene R\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5\"},\"headline\":\"Earnings Yield\",\"datePublished\":\"2021-08-19T16:06:26+00:00\",\"dateModified\":\"2026-03-19T17:34:45+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\"},\"wordCount\":233,\"keywords\":[\"CFA-level-2\",\"Earnings Yield\",\"Equity Valuation\",\"Reading 29: Market-Based Valuation\"],\"articleSection\":[\"CFA Level II Study Notes\",\"Equity Valuation\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\",\"url\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\",\"name\":\"Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\"},\"datePublished\":\"2021-08-19T16:06:26+00:00\",\"dateModified\":\"2026-03-19T17:34:45+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5\"},\"description\":\"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/study-notes\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Earnings Yield\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\",\"url\":\"https:\/\/analystprep.com\/study-notes\/\",\"name\":\"CFA, FRM, and Actuarial Exams Study Notes\",\"description\":\"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5\",\"name\":\"Irene R\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/33caf1e1bcb63ee970b36351f165c7bc714b19614993ab9c2c8bf36273b7df48?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/33caf1e1bcb63ee970b36351f165c7bc714b19614993ab9c2c8bf36273b7df48?s=96&d=mm&r=g\",\"caption\":\"Irene R\"},\"url\":\"https:\/\/analystprep.com\/study-notes\/author\/irene\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/0kMmbenpFuo\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"3761\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2021-08-19T16:06:26+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes","description":"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/","og_locale":"en_US","og_type":"article","og_title":"Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes","og_description":"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.","og_url":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/","og_site_name":"CFA, FRM, and Actuarial Exams Study Notes","article_published_time":"2021-08-19T16:06:26+00:00","article_modified_time":"2026-03-19T17:34:45+00:00","author":"Irene R","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Irene R","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/"},"author":{"name":"Irene R","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5"},"headline":"Earnings Yield","datePublished":"2021-08-19T16:06:26+00:00","dateModified":"2026-03-19T17:34:45+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/"},"wordCount":233,"keywords":["CFA-level-2","Earnings Yield","Equity Valuation","Reading 29: Market-Based Valuation"],"articleSection":["CFA Level II Study Notes","Equity Valuation"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/","url":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/","name":"Earnings Yield - CFA, FRM, and Actuarial Exams Study Notes","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/#website"},"datePublished":"2021-08-19T16:06:26+00:00","dateModified":"2026-03-19T17:34:45+00:00","author":{"@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5"},"description":"Learn why earnings yield is preferred over the price-to-earnings ratio (P\/E) and how it addresses issues with zero and negative P\/E ratios.","breadcrumb":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/earnings-yield\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/study-notes\/"},{"@type":"ListItem","position":2,"name":"Earnings Yield"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/study-notes\/#website","url":"https:\/\/analystprep.com\/study-notes\/","name":"CFA, FRM, and Actuarial Exams Study Notes","description":"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/7002f30d8f174958802c1c30b167eaf5","name":"Irene R","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/33caf1e1bcb63ee970b36351f165c7bc714b19614993ab9c2c8bf36273b7df48?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/33caf1e1bcb63ee970b36351f165c7bc714b19614993ab9c2c8bf36273b7df48?s=96&d=mm&r=g","caption":"Irene R"},"url":"https:\/\/analystprep.com\/study-notes\/author\/irene\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/0kMmbenpFuo","og_video_type":"text\/html","og_video_duration":"3761","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2021-08-19T16:06:26+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19956","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/comments?post=19956"}],"version-history":[{"count":4,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19956\/revisions"}],"predecessor-version":[{"id":42815,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/19956\/revisions\/42815"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/media?parent=19956"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/categories?post=19956"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/tags?post=19956"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}