Earnings Yield ( EBIT / EV )

What is the definition of Earnings Yield %?

As defined in the Little Book that Beats the Market, the earnings yield compares the profit generated with the market's valuation of the company. It is defined as operating profit divided by enterprise value.

Many refer to it as the EBIT/EV (Earnings before interest and tax / Enterprise Value)/

Enterprise value is used by Greenblatt rather than market capitaliation to reflect the competing claims of debt and equity holders on the business. This penalizes companies that carry a lot of debt and little cash, and rewards firms with a lot of cash - a useful distinction not reflected in the P/E ratio.

Operating earnings are used instead of net income to eliminate the distortions caused by recognized tax benefits or goodwill write-downs that have very little to do with the company's profitability.


Stockopedia explains Earnings Yield %...

In the case of negative Entreprise Value stocks, we replace the Enterprise Value with a 1 to avoid having a negative denominator (the alternative would be to print n/a but these stocks are obviously good from an Earnings Yield perspective).

You can read more about this here.


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