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.

RELATED TERMS
  1. Accounting Earnings

    The amount of money a company has earned during a given period, ...
  2. Forward Earnings

    A company's forecasted, or estimated, earnings made by analysts ...
  3. Dividend

    A distribution of a portion of a company's earnings, decided ...
  4. Indicated Yield

    The dividend yield that a share of stock would return based on ...
  5. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  6. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
Related Articles
  1. Insurance

    Everything Investors Need To Know About Earnings

    We go over the concepts behind the excitement over the most important figure in the stock market.
  2. 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.
  3. Investing

    How to Use Earnings Season to Make Better Decisions

    Earnings season reflects the state of the stock market, but also demonstrates how the overall economy is performing.
  4. Investing Basics

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  5. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
  6. Options & Futures

    Conversion Arbitrage: Interest Risk And Reward

    By John SummaIn the previous section, the concept of dividend payout was introduced. Now we take another step closer toward reality by introducing additional elements of reward and risk: interest ...
  7. Investing Basics

    Growth Investing

    Growth investing is a strategy where an investor seeks out companies demonstrating signs of high earnings that are well above the average rate compared to other firms in their industry and within ...
  8. Investing Basics

    Stocks Basics: What Causes Stock Prices To Change?

    Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), ...
  9. Markets

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  10. Investing Basics

    What Are Corporate Actions?

    Corporate actions are processes that change a company’s stock. Here are a few examples.
RELATED FAQS
  1. Why do some companies pay a dividend, while other companies do not?

    Dividends are corporate earnings that companies pass on to their shareholders. There are a number of reasons why a corporation ... Read Answer >>
  2. 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 >>
  3. Can a company declare a dividend that exceeds its earnings per share?

    Yes, it can. In fact, many well-known Fortune 500 companies have paid dividends in years where they posted negative earnings ... Read Answer >>
  4. How do dividends affect retained earnings?

    Find out how distribution of dividends affects a company's retained earnings, including the difference between cash dividends ... Read Answer >>
  5. Is maximizing stock price the same thing as maximizing profit?

    Simply put: yes. A company's stock price will factor in many different variables including the type of industry the firm ... Read Answer >>
  6. Since stockholders are entitled to a company's assets and earnings, can a stockholder ...

    When buying stock in a company, an investor becomes a part owner of that company. In addition to possessing the small degree ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center