Earning Power

Earning power is a company’s ability to generate profit. Specifically, its ability to generate profit from its operations. Investors and analysts calculate earning power to determine whether a company is worth investing in.

It is calculated by dividing EBIT with total assets for the most recent financial year. (EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.)