Earnings Yield and Free Cash Flow Yield
How turning a multiple upside down into a yield makes it easy to compare a stock with a bond, how free cash flow yield focuses on real cash, and why growth makes the comparison more than a race between two percentages.
The short version
Earnings yield is earnings per share divided by the share price, the P/E turned upside down. Free cash flow yield is free cash flow per share divided by the price. Both show what the business earns or generates each year for every dollar you pay, which makes them easy to compare with interest rates. Unlike a bond's fixed interest, a company's earnings can grow or shrink, and most of them aren't paid out. As a rough guide, if a company's free cash flow grows steadily and its valuation doesn't change, its yield plus its growth rate approximates the return to shareholders.
By the end of this lesson, you'll be able to
- Calculate earnings yield, free cash flow yield, and dividend yield
- Compare a stock's yields with a Treasury yield, and explain why they're not equivalent
- Estimate a rough expected return from yield and growth, and know its limits
Why this matters
A P/E of 17 is hard to compare with anything except other P/Es. Turn it upside down and it becomes a yield, a percentage you can set next to a savings rate or a bond yield. That simple flip makes it much easier to ask whether a stock's price makes sense compared with the alternatives.
Three yields
Earnings yield = Earnings per share ÷ Share price
Free cash flow yield = Free cash flow per share ÷ Share price
Dividend yield = Dividends per share ÷ Share price
The Earnings yield. Earnings per share divided by the share price: the P/E ratio turned upside down. Glossary shows how much profit the business earns each year for every dollar you pay. The Free cash flow yield. Free cash flow per share divided by the share price: the cash a business generates each year for every dollar paid for it. Glossary does the same with cash, which is harder to dress up than earnings. The dividend yield shows the part actually paid to you.
| At a share price of $50 | Per share | Yield |
|---|---|---|
| Earnings | $2.90 | 5.8% |
| Free cash flow: $44 million ÷ 20 million shares | $2.20 | 4.4% |
| Dividends | $0.70 | 1.4% |
| 10-year US Treasury note, September 30, 2026 | 5.29% |
The Treasury figure is from the US Treasury's daily yield curve data.1 STU Corp's earnings yield is only a little above the Treasury yield, and its free cash flow yield is below it.
The rest of this lesson is for members
Still to come in this lesson: Why a stock yield isn't a bond yield, Yield plus growth, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Earnings Multiples: P/E and PEGPart 4: Research and Valuation
- Discounted Cash Flow, Step by StepPart 4: Research and Valuation
- Dividend PolicyCorporate Finance (depth track)
Notes and sources
- U.S. Department of the Treasury. Daily Treasury Par Yield Curve Rates. Checked 2026-10-01. Back to text
- This approximation comes from a constant-growth model, covered in the last module of this part. It assumes the growth rate holds indefinitely and the free cash flow yield stays constant, which real companies rarely do.