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.

RELATED TERMS
  1. Asset Performance

    A business's ability to take productive resources and manage ...
  2. Return On Total Assets - ROTA

    A ratio that measures a company's earnings before interest and ...
  3. Earning Assets

    An income-producing investment that is owned by a business, institution ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  5. Asset Condition Assessment

    A report outlining how an organization can manage capital assets ...
  6. Return On Assets Managed - ROAM

    A measure of profits shown as a percentage of the capital that ...
Related Articles
  1. Economics

    What are Earnings?

    The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year.
  2. Savings

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  3. Investing Basics

    What is a Real Asset?

    A real asset is a physical asset that has value.
  4. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  5. Markets

    Earnings Power Drives Stocks

    Internal return on investment helps determine a stock's ability to propel shareholder returns.
  6. Fundamental Analysis

    Reviewing Assets On The Balance Sheet

    A firm uses its assets to generate sales and bottom-line profits for shareholders. A healthy company will continually grow its assets, which stems from leftover profits that are reinvested back ...
  7. Investing Basics

    How To Evaluate A Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  8. Markets

    The Most Important Metrics For Earnings Season

    Knowing how to read an earnings report can help investors decide which stocks to buy.
  9. Investing Basics

    6 Asset Allocation Strategies That Work

    An asset mix should reflect an investor’s current goals. Here are a few strategies for establishing the right allocation.
  10. Markets

    Fundamental Analysis: The Balance Sheet

    By Ben McClureInvestors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as revenue and earnings. While earnings are important, they don't tell the whole story. ...
RELATED FAQS
  1. Are stocks real assets?

    Learn why stocks are classified as financial assets, not real assets. Understand the properties that determine whether an ... Read Answer >>
  2. How can a company raise its asset turnover ratio?

    Find out more about the asset turnover ratio, what it measures, how to calculate the ratio and how a company could increase ... Read Answer >>
  3. Which financial ratios are considered to be efficiency ratios?

    Learn about efficiency ratios, what financial ratios are considered efficiency ratios, and how to calculate three different ... Read Answer >>
  4. What is earnings management?

    Before diving into what earnings management is, it is important to have a solid understanding of what we mean when we refer ... Read Answer >>
  5. Are current assets liquid or capital?

    Take a deeper look at liquid current assets for businesses and individuals, and learn how they differ from other types of ... Read Answer >>
  6. Why are efficiency ratios important to investors?

    Learn about efficiency ratios, such as the asset turnover ratio, and why these metrics are important to investors when analyzing ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center