High Earnings Yield Screen
Stocks with high operating earnings yield (low EV/EBIT) — a valuation screen that adjusts for capital structure and is less affected by depreciation assumptions than EV/EBITDA.
What Is Earnings Yield?
Earnings yield is the inverse of the P/E ratio: earnings divided by price, expressed as a percentage. At its simplest, it answers the question: if you buy this business at its current market price, what return do you get in terms of earnings per dollar invested?
The enterprise value version — EBIT divided by enterprise value, or the inverse of the EV/EBIT multiple — is more analytically rigorous. Like EV/EBITDA, it adjusts for capital structure by using enterprise value rather than market cap. Unlike EV/EBITDA, it does not add back depreciation — EBIT deducts the D&A expense, making it a more conservative cash earnings proxy for businesses with real capital requirements. The earnings yield version of EV/EBIT expresses this as a percentage, making it directly comparable to bond yields and other fixed income instruments.
Joel Greenblatt's Magic Formula uses earnings yield (EBIT/EV) as its valuation component — it is his preferred measure for finding cheap businesses precisely because it normalizes for capital structure and avoids the EBITDA distortion problem. At a time when the 10-year Treasury yield is in a given range, an earnings yield screen can identify equity investments offering operating earnings yields significantly above the risk-free rate.
The earnings yield screen is not the same as the Magic Formula — this screen does not rank on ROIC. It focuses purely on price: businesses with the highest operating earnings yield (lowest EV/EBIT multiples) regardless of their capital efficiency. The cheapest businesses on this measure are often in cyclical industries at or near peak earnings, mature/declining businesses, or companies with genuine balance sheet concerns that depress EV artificially.
The criteria in plain English:
- EV/EBIT below 10 (earnings yield above ~10%) — the business generates operating earnings substantially above its enterprise cost
- EV/EBIT above 1 — negative EBIT produces a meaningless low multiple
- Positive EBIT — the business is operationally profitable
- Some quality filter — without a quality overlay, the screen surfaces significant distressed material
As a standalone screen, high earnings yield requires the most additional qualitative work. Combined with a quality or leverage filter, it becomes a powerful value identification tool.
How to Run This Screen in GeminIQ
Step 1. Open the GeminIQ Screener
Step 2. Add the following filters:
| Filter | Operator | Value |
|---|---|---|
| EV/EBIT TTM | ≤ | 10 |
| EV/EBIT TTM | ≥ | 1 |
EBIT |
≥ | 1 |
Step 3. Set Sort By to EV/EBIT TTM, direction Ascending — highest earnings yield first.
Step 4. To add a quality filter that distinguishes operationally sound businesses from distressed ones, add:
| Filter | Operator | Value |
|---|---|---|
| Interest Coverage TTM | ≥ | 3 |
| ROIC TTM | ≥ | 8 |
| Altman Z Score | ≥ | 2.5 |
The interest coverage filter ensures operating earnings are more than sufficient to cover debt service. The Altman Z-Score filter removes companies approaching financial distress.
GeminIQ Tip: For the highest-conviction earnings yield candidates, compare EV/EBIT TTM against EV/EBITDA TTM in the Calculated Metrics view. A company where EV/EBIT is 8× and EV/EBITDA is 7.5× has very low depreciation relative to EBITDA — it is a light-asset business where both measures tell the same story. A company where EV/EBIT is 9× and EV/EBITDA is 5× has very high D&A, indicating significant capital consumption that the EBITDA multiple conceals.
What Aggregator Data Misses for This Screen
EBIT and one-time item treatment. Aggregators frequently report "adjusted EBIT" or "normalized EBIT" that excludes restructuring charges, impairment charges, and gains/losses on asset sales. A company that takes frequent "one-time" restructuring charges will show a much lower GAAP EBIT than its adjusted EBIT — producing a higher (more expensive) EV/EBIT on an as-filed basis. GeminIQ uses as-filed EBIT derived from the income statement. If a company takes charges regularly, those charges are a real cost of operating the business, and the as-filed number more accurately reflects true earnings power.
Enterprise value and operating lease debt. Since ASC 842, operating lease liabilities appear on the balance sheet and are included in some enterprise value calculations. A retailer with $3B of operating lease liabilities will have very different EV depending on whether those leases are included. Aggregators differ in their treatment. GeminIQ's enterprise value is built from as-filed balance sheet components, and lease liabilities are identifiable as a separate line — you can calculate EV both with and without operating leases to understand the sensitivity.
Interest and EBIT in the income statement. Some companies classify interest income within operating income rather than below the EBIT line, particularly financial services adjacent businesses and holding companies with large investment portfolios. This inflates as-filed EBIT and compresses the apparent EV/EBIT multiple. GeminIQ's financial statements preserve the as-filed income statement structure with XBRL tags, so you can verify what is included in the operating income figure for any specific company.
GeminIQ builds its financial statement database from raw SEC filings, not from third-party financial data APIs.
This screen is educational and does not constitute investment advice. Past performance of any strategy does not guarantee future results.