Basic earnings power ratio

Basic earnings power = EBIT/Total assets 

Basic earnings power (BEP) ratio is used for two reasons. One, it is used to measure the earnings power of a company s assets. In other words, it answers the question, how many dollars has the company earned from operations per dollar of asset employed Second, since taxes and debt financing have a direct effect on profit margin on sales, BEP is useful in distinguishing between companies with different tax and debt structures. PepsiCo brings in 12.5 cents in operating profit for every dollar it has in total assets. 

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Assets have two components (1) how they are bought and financed, and (2) how efficiently they are operated. When measuring managers use of assets to generate a profit, it is beneficial not to include how the assets were financed. Dollars earned (net income) for ROA is an after interest and tax amount. To remove the interest and tax impact, use the basic earnings power (BEP) ratio. 

Basic earnings power (BEP) ratio EBIT/Total assets = 9,705/ 77,478 = 12.5%... 

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