BASIC EARNINGS POWER Definition

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BASIC EARNINGS POWER (BEP) is useful for comparing firms in different tax situations and with different degrees of financial leverage. This ratio is often used as a measure of the effectiveness of operations. Basic Earning Power measures the basic profitability of Assets because it excludes consideration of interest and tax. This ratio should be examined in conjunction with turnover ratios to help pinpoint potential problems regarding asset management. Formula: EBIT / Total Assets

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SELLING SHORT is selling securities not yet owned by the seller in anticipation of declining market prices. At some point in the future, the seller covers the sale by purchas­ing and delivering the securities.

CONTROL RISK is the risk that material error in a balance or transaction class will not be prevented or detected on a timely basis by internal controls.

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