Earning Power Law and Legal Definition

Earning power is operating income divided by total assets. Earning power is the ability of a business to earn a profit on invested capital after paying owners and employees, servicing obligations, and fully recognizing its costs while following good accounting practices. It is measured in terms of the profit generated during a certain period of time in relation to the capital employed. A bank loan officer looks at a company's ability to generate earnings as an important test of business risk when approving a loan application.