Yield definition
/What is Yield in Finance?
Yield is the rate of return on an investment over a period of time, usually expressed as a percentage of the amount initially invested. Investment yield is a primary concern of the investor, along with the risk of loss associated with an investment.
How to Calculate Yield
Yield is calculated as the return generated from an investment, divided by the either the original investment amount or the current market value of the investment. It is typically stated as an annualized number. Thus, if there is an actual return of $100 on an investment of $1,000 after three months, it is considered to have a yield of 40% on an annualized basis (the actual 10% return multiplied by four quarters).
The yield calculation should include unrealized gains or unrealized losses on those investments that an investor continues to hold (such as bonds or stocks); otherwise, the yield will only be based on dividends or interest payments, and so will not represent a complete picture of the return on investment.
When an investment is in a fund, the yield is calculated as the income generated by the fund minus fund expenses, divided by the investment.
Understanding Yield
Yield measures the proportional return on investment. As such, it is one of the main metrics used by investors. However, a high return is typically coupled with higher risk, so one should be cognizant of the risk associated with any investment that promises high returns. Also, be aware that yield measurements can vary substantially, depending on the time period covered. This means that a high yield in one quarter might be offset by a negative yield in the next quarter, depending on ongoing fluctuations in an investment’s market value.
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What is Yield in Manufacturing?
In a production process, yield is the proportion of inputs actually included in the final output of the process. Reducing the level of scrap generated by a process will increase the yield, which in turn increases profits. Concentrating on achieving six sigma quality levels is one of the best ways to increase yield in manufacturing. Another option is to increase the quality of the raw materials used, which can increase the yield. Yet another possibility is to expand the tolerable range of outcomes considered acceptable for outputs to still be usable (though this depends on the uses to which the outputs will be used).