What does Earnings Yield % mean?
As defined in the Little Book that Beats the Market, the earnings yield compares the profit generated with the market valuation of the company. It is defined as operating profit divided by enterprise value - enterprise value is used 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.
