In business, the yield is a measurement of the ex-post return to an owner of a particular security. It's a measure typically applied to preferred stocks, common stocks and bond, long term bonds, securities guaranteed by Fannie Mae or Freddie Mac, and other common financial instruments. The term "yield" refers to the rate of return on an investment, not a pre-determined amount. In many cases, a company's actual yield is calculated as a percentage of net worth (i.e., net worth less debt). However, in the last decade, financial institutions have been permitted to calculate Yield by using certain models that use historical data on company financial performance.
The yield can also represent the portion of an investment's realized gain. Yield on equity is the portion of stockholders' equity that is retained by the company after the deductive revenue share. These two terms are often used interchangeably, especially when the accounting methodologies do not require the same degree of annual return on investment. Examples of common types of Yield include Cash Flow, Earnings, Cost of goods sold, Franchised dealers, Financial Debt, Interest Income and Others.
Purchasing shares that pay a higher yield than the average market price will result in substantial gains for the investor. Conversely, purchasing shares that pay below the typical market price will result in losses for the investor. As with any investment, it's important to understand how Yield is calculated and what effect it has on your bottom line. The more you know about Yield before you purchase any stocks that will affect your buying decisions, the more likely you are to make the right decision when it comes to choosing the right stock.
