Certified Management Accountant Practice Exam 2026 - Free CMA Practice Questions and Study Guide

Earnings Yield is calculated by dividing Earnings per Share (EPS) by Market Price per Share. This ratio provides investors with a measure of how much earnings a company generates relative to its market price.

By using this formula, investors can assess the profitability of a company in comparison to its market valuation. A higher earnings yield indicates that the company is generating more earnings for every dollar invested, which may suggest that the stock is undervalued, especially when compared to other stocks or to the overall market. This metric is often used in conjunction with the Price-to-Earnings ratio, as it essentially represents the inverse of that ratio.

The other options represent different financial metrics or ratios that are not the definition of Earnings Yield. For instance, the second option incorrectly reverses the formula, while the third and fourth options focus on dividends rather than earnings, which are not relevant to this specific calculation.