Earnings Yield

Earnings Yield = Operating Income or earnings before interest and taxes (EBIT) / Enterprise Value

If the returned value for Enterprise Value is negative a default value of 1 is used for calculation purposes. This mean when we calculate ratio's like Earnings Yield (EBIT / EV), we use 1 as if EV is negative. If not Earnings Yield ratio would be a negative number.

This way profitable companies with a negative Enterprise Value does not get unfairly excluded.

See separate definition of Enterprise Value

 

Just how good is this ratio?

Here is more information on just how much earnings yield can help your investment returns: A simple ratio beats the world’s best value funds

 

Also take a look at the Strategies page where you can get back test information on a lot of investment strategies that use Earnings Yield