Asset Earning Power - AEP

DEFINITION of 'Asset Earning Power - AEP'

The earnings generated by a business relative to its asset base. Asset earning power is a common performance measure in corporate finance, used to determine a firm's efficiency in generating earnings from its asset base. Asset earning power is calculated as:

Asset Earning Power = Earnings Before Taxes (EBT)/Total Assets.

BREAKING DOWN 'Asset Earning Power - AEP'

Typically, the higher the asset earnings power ratio a company has relative to others within its industry, the more efficient that firm is at generating cashflows from its asset base. For example, a company that reports earnings before taxes of $75 million, while carrying total assets on its balance sheet of $25 million, would have an asset earning power ratio of 3.0 times.

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