Earning Potential

DEFINITION of 'Earning Potential'

The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock.

BREAKING DOWN 'Earning Potential'

Although earning potential can cause a stock's price to rise, it will not necessarily translate into higher current dividends. A company that comes out with an innovative new product may have higher earning potential in the future, but the projected revenue may not translate into actual profit for some time.

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RELATED FAQS
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  5. Is maximizing stock price the same thing as maximizing profit?

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