ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What is the Earnings Yield formula?

(EPS/Market price per share) x 100%
(Market price per share/EPS) x 100%
EPS x Market price
EPS/(Market price per share) x 100%

The correct answer is: (EPS/Market price per share) x 100%

The Earnings Yield formula is designed to express earnings per share relative to the market price per share, providing insight into the return an investor might expect based on the current market valuation of a company. The correct formula is calculated by taking the Earnings Per Share (EPS) and dividing it by the market price per share. This ratio is then multiplied by 100% to convert it into a percentage, making the earnings yield more interpretable for investors. Using this formula, investors can assess the earnings generated per dollar invested in the company's stock, offering a perspective comparable to a bond yield. A higher earnings yield can suggest that a stock is undervalued relative to its earnings, or it may reflect greater risk. The other options present variations that do not accurately represent the earnings yield. One of them involves the inversion of the relationship between EPS and the market price, which leads to a yield that reflects the inverse relationship rather than the expected return on investment from earnings. Another option incorrectly multiplies EPS by market price, which does not align with the purpose of calculating the yield as it lacks the necessary relational framework required for understanding earnings relative to market valuation. This highlights the specific value of the correct formula in financial analysis and investment decision-making.