X-1 Corp's total assets at the end of last year were $440,000 and its EBIT was $55,000. What was its basic earning power (BEP) ratio?
The basic earning power ratio is another profitability ratio (BEP). The goal of BEP is to assess how effectively a company uses its assets to create revenue. The greater the BEP ratio, the better a company's ability to generate revenue from its assets.
When EBIT is used instead of operating income, the ratio takes into account all money received by the firm, not only income from operational activity. This provides a more detailed view of how the organization generates revenue.
BEP is useful for comparing enterprises with varying tax positions and levels of financial debt.
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