Enter the total earnings before interest and taxes and the total assets of a business to determine the basic earning power.

## 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 ($)
- A is the total assets ($)

## FAQ

**What is basic earning power?**

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.

## BEP Example

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.

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