# Basic Earning Power Ratio Calculator

The basic earning power ratio is the relationship between the earning power of a company and its assets. The higher the Earning Power Ratio, the better it is.

The formula for calculating the basic earning power ratio is:

Basic Earning Power Ratio = EBIT / Total Assets

Or,

Basic Earning Power Ratio = Operating Profit Margin * Total Assets Turnover Ratio.

We need to understand that the second formula will eventually give the same result as the first one. How? Let us have a look.

Operating Profit Margin = EBIT / Turnover

Total Assets Turnover Ratio = Turnover / Total Assets

Now putting both these formulas in the second formula of the basic earning power ratio, we will get the first formula.

Basic Earning Power Ratio = (EBIT / Turnover) * (Turnover / Total Assets)

That is, EBIT / Total Assets

## How to Calculate using Calculator?

The user has to only type the following figures in the calculator and will get the result with a simple click on the calculate button.

EBIT – It is the earnings of the company before paying off interest and taxes. Both operating and non-operating incomes are a part of this. EBIT can be calculated with the help of the following formula:

EBIT = Net Income + Interest + Taxes

To know more about EBIT, refer to the article: EBIT

Total Assets – We can easily obtain the value of total assets from the balance sheet.

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