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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ACCRUAL is the recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed.

UNREALIZED ACCOUNTS RECEIVABLE, in cash based accounting, is monies due but not received; can be used to offset taxes.

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