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Glossary Term: Adjusted Earnings Yield

Definition(s) for Adjusted Earnings Yield:


1. ) Reported earnings misrepresent true earnings because of GAAP, historical-cost accounting and inflation issue. For example, a company that purchases an equipment may depreciated the equipment less than the true cost of depreciation. Thus, reported earnings should be adjusted by accounting adjustments and inflation. The adjusted earnings yield can be presented in the following equation: r = (E arnings+ accounting adjustment + (expected rate of inflation times the beginning-of-period Debt)) divided by the Market Value of the Equity. Stephen Wilcox, CFA, presented a paper in the CFA Magazine that concludes that adjusted earnings yield is a better predictor of real return of equities.





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