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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HORIZONTAL FINANCIAL ANALYSIS allows comparison of one companys ratios to the ratios of other companies as well as to average industrial ratios and internal industrial deviation of these ratios.

REVOLVING FUND is money that is renewed as it is used.

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