Enter the total earnings before interest and taxes and the total assets of a business to determine the basic earning power.
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Basic Earning Power Formula
The following formula is used to calculate a basic earning power.
BeP = EBIT / A
- Where BeP is the basic earning power
- EBIT is the earning before taxes and interest ($)
- A is the total assets ($)
To calculate the basic earning power, divide the earnings before taxes an interest by the total assets value.
Basic Earning Power Definition
Basic earning power is defined as the total earnings value per asset value.
How to calculate basic earning power?
- First, determine the EBIT.
Calculate the total earnings before interest and tax of the particular business or segment.
- Next, determine the total assets value.
Calculate the total value of all assets in the business.
- Finally, calculate the basic earning power.
Using the formula above, the EBIT, and asset value, determine the basic earning power. Use the ratio to analyze the financial leverage the business has.
A basic earning power, also known as BEP for short, is a ratio of the EBIT to total assets of a given business. It’s a measure of a company’s leverage of earnings to assets. The higher the ratio the higher the leverage and more earnings per asset value.