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Earnings Yield (EBIT/EV)
For informational and educational purposes only • Not investment advice.
Amazon
E-commerce, AWS, logistics
Earnings Yield
Stock price: $262.43
Moderate earnings yield
This model compares operating profit (EBIT) with Enterprise Value to measure how much annual operating earnings the business generates relative to its market valuation.
Historical Earnings Yield (EBIT/EV)
Historical EBIT divided by Enterprise Value, using each year's share count, debt, cash, and representative stock price.
Key Valuation Metrics
What is Earnings Yield?
Earnings Yield measures how much operating earnings a company generates relative to its Enterprise Value. It is calculated as EBIT divided by Enterprise Value and is the inverse of the EV/EBIT multiple.
Unlike intrinsic valuation models, Earnings Yield does not estimate a fair value. Instead, it measures current operating earnings relative to the price investors are paying for the business.
Generally, a higher Earnings Yield indicates a lower valuation relative to operating earnings, while a lower Earnings Yield indicates a higher valuation.
Earnings Yield Formula
How Earnings Yield Works
The Earnings Yield model measures how much operating earnings the business generates relative to Enterprise Value. It first calculates Enterprise Value, compares it with EBIT, then converts the EV/EBIT multiple into an earnings-yield percentage.
Key Model Assumptions
• Current EBIT is based on trailing twelve-month (TTM) operating results when four consecutive quarterly periods are available; otherwise, the latest annual EBIT is used.
• Enterprise Value is calculated by adjusting Market Capitalization for Net Debt or Net Cash.
• Earnings Yield measures current operating earnings relative to Enterprise Value and does not estimate intrinsic value.
• A higher Earnings Yield generally indicates a lower valuation relative to operating earnings, while a lower Earnings Yield indicates a higher valuation.
• The model assumes current EBIT is representative of the company's normalized operating performance.
• Earnings Yield is the inverse of the EV/EBIT multiple, so both measures contain the same valuation information.
Step 1 — Calculate Enterprise Value
= $223.2B - $123.0B = $100.2B
Enterprise Value:
$2823.0B + $100.2B = $2923.2B
The model begins by calculating Amazon's Enterprise Value, which measures the total value of the operating business. Market Capitalization is adjusted for Net Debt or Net Cash to determine Enterprise Value, making it the appropriate value to compare with EBIT. Under the current assumptions, Enterprise Value is $2923.2B.
Step 2 — Calculate EV/EBIT
The model compares Amazon's Enterprise Value with its operating earnings by calculating the EV/EBIT multiple. This shows how much investors are paying for each dollar of EBIT. Under the current assumptions, Amazon trades at 16.4× EBIT.
Step 3 — Convert EV/EBIT into Earnings Yield
The final step expresses the EV/EBIT multiple as an Earnings Yield. Dividing EBIT by Enterprise Value measures annual operating earnings relative to the value of the operating business. Because Earnings Yield is the inverse of EV/EBIT, both measures describe the same valuation from different perspectives. Under the current assumptions, Amazon has an Earnings Yield of 6.1%.