Legal Definitions - earnings-price ratio

The earnings-price ratio is a financial term that shows the earnings per share of a security divided by its market price. In simpler terms, it is the profit a company makes for every dollar invested in it. The higher the ratio, the better the investment yield.

• Coupon Yield: The annual interest paid on a security (especially a bond) divided by the security's par value.
• Current Yield: The annual interest paid on a security (especially a bond) divided by the security's current market price.
• Discount Yield: The yield on a security sold at a discount.
• Earnings Yield: The earnings per share of a security divided by its market price.
• Net Yield: The profit or loss on an investment after deducting all appropriate costs and loss reserves.

Let's say a company has earnings per share of $5 and its stock is trading at $50 per share. The earnings-price ratio would be 0.1 or 10%. This means that for every dollar invested in the company, the investor would earn 10 cents in profit.

Another example would be a bond with a par value of $1000 and a coupon rate of 5%. The coupon yield would be $50 per year ($1000 x 0.05).

These examples illustrate how the different types of yield are calculated and how they can be used to evaluate the profitability of an investment.