Basic Earning Power (BEP) Ratio: Formula, Real 10-K Examples and Typical Values

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-14 · Updated 2026-11-01 · Reviewed 2026-11-01

Basic earning power (BEP) is earnings before interest and tax divided by total assets: the operating profit a company makes from everything it owns, before lenders and the tax office take their share. Home Depot’s latest 10-K gives 19.88%, and the median large US non-financial company in fiscal 2025 made 6.49%.

Most explanations stop at the formula and a made-up company. This one runs the division on real 10-K filings, shows the two choices that quietly move the answer (which EBIT, and which total assets), and then splits 350 large companies’ ratios into margin and turnover, so you can see how a grocer and a chip designer arrive at very different numbers.

How it works

Basic earning power = EBIT / total assets. Both inputs come straight from the annual report: EBIT from the income statement and total assets from the balance sheet.

EBIT can be built two ways. Top-down, it is operating income: revenue minus the cost of goods and operating expenses. Bottom-up, it is pre-tax income with interest expense added back, which also picks up small non-operating items such as interest the company earned. The EBIT page covers the difference in full; on a large company it is usually a fraction of a point, as the example below shows.

Total assets is everything the company owns, however it was paid for. That is why interest and tax are left out of the numerator: the assets were funded by lenders and shareholders together, so the return is measured before either is paid.

It is also two familiar ratios multiplied. Operating income / revenue (the operating margin) times revenue / total assets (asset turnover) equals operating income / total assets. The original data section below is built on that split.

A worked example

The Home Depot, fiscal year ended 1 Feb 2026, from its 10-K data on SEC EDGAR: operating income $20.890 billion, total assets $105.095 billion.

• Basic earning power = $20.890 / $105.095 = 19.88%.
• As a check: operating margin $20.890 / $164.683 billion of revenue = 12.68%, asset turnover $164.683 / $105.095 = 1.567, and 12.68% x 1.567 = 19.88%.
• Bottom-up EBIT: pre-tax income $18.602 billion + interest expense $2.412 billion = $21.014 billion, which gives 20.00%. The $124 million gap is exactly the interest and investment income Home Depot reported, which the bottom-up version counts and operating income does not.

Lowe’s, fiscal year ended 30 Jan 2026: operating income $10.153 billion, total assets $54.144 billion, so $10.153 / $54.144 = 18.75%. Each dollar of Lowe’s assets produced about 18.8 cents of operating profit; each dollar of Home Depot’s, about 19.9 cents.

Now change one word: average total assets. Some textbooks divide by the average of the opening and closing balance sheets, because profit is earned across the year, not on its last day. Home Depot’s assets were $96.119 billion a year earlier, so the average is $100.607 billion and the ratio becomes 20.76%. Lowe’s grew faster, from $43.102 billion to $54.144 billion, so its average is $48.623 billion and its ratio becomes 20.88%.

The ranking flips: on year-end assets Home Depot leads by more than a point; on average assets Lowe’s is ahead.

Neither version is wrong. Pick one, say which, and use it for every company you compare. A company that bought or built a lot of assets late in the year looks worse on year-end assets than it will once those assets have a full year to earn.

What return on equity hides

Return on equity divides profit by a figure the company can shrink on purpose. Buying back shares and paying dividends reduces book equity; borrowing to fund them adds debt without adding equity. Home Depot’s net income of $14.156 billion against year-end equity of $12.813 billion gives 110.48%, and two years earlier, on equity of $1.044 billion, it was 1,450.48%.

Lowe’s has no meaningful return on equity at all. Its year-end shareholders’ equity was -$9.917 billion, so dividing a profit by it produces a number that means nothing, while the stores kept earning.

Basic earning power does not move with that financing. The two retailers sat within about a point of each other on their assets in the same year, which return on equity could not show. Return on assets sits in between: Home Depot’s net income over total assets was 13.47%, lower than its BEP because interest and tax have already been paid.

The original data

Source: SEC EDGAR XBRL. Home Depot and Lowe’s come from each company’s 10-K values (company facts, downloaded 4 Oct 2026), six fiscal years each, ending January or early February.

Every value, with net income, revenue and goodwill, is in the Home Depot and Lowe’s basic earning power file. Two companies in one industry say nothing about what is normal, so the same division was run on every large filer in the SEC’s XBRL frames, which list one value per company for a period.

The large-filer sample. Calendar-2025 operating income joined to end-of-2025 total assets on the company, same period end, $10 billion or more of assets and a full fiscal year leaves 440 filers, with fiscal years ending between November 2025 and February 2026. Companies whose year ends earlier, such as Microsoft, Apple and Walt Disney, drop out because the frames pair their balance sheet with a different year’s income. Leaving out banks, insurers and property companies (the largest banks file no operating income line) leaves 381.

A normal reading is single digits. The 381 had a median of 6.49%, and half of them sat between 3.57% and 10.30%. Only 19 (4.99%) reached 20% or more, and 44 (11.55%) were below zero, among them Ford at -3.17% and Intel at -1.05%. Against them, Home Depot’s 19.88% ranked 20th and Lowe’s 18.75% ranked 23rd. The highest was NVIDIA, with $130.387 billion of operating income on $206.803 billion of assets, 63.05%.

Margin and turnover, company by company. For 350 of the 381, the frames also hold revenue for the exact same fiscal year (total revenues where filed, otherwise revenue from customer contracts), so each ratio splits into its two parts (27 had no matching revenue line, and 4 were left out where the revenue tag did not fit the operating income, giving margins beyond 100%). The median company kept 14.03 cents of operating profit per dollar of sales and turned its assets over 0.51 times a year.

Two routes to the same ratio. Walmart (fiscal year ended 31 Jan 2026) made a 4.18% operating margin on $713.163 billion of sales and turned its $284.668 billion of assets over 2.51 times: 10.48%. Amazon made an 11.16% margin, nearly three times Walmart’s, but its $818.042 billion of assets turned over only 0.88 times: 9.78%.

Kroger, the fastest at 2.96 turns, kept only 1.28 cents per sales dollar and earned 3.78%.

Among the 54 companies within one point of the 6.49% median, margins ran from 3.25% (Group 1 Automotive, a car dealer turning its assets over 2.18 times) to 55.26% (ITC Holdings, a power transmission company turning them over 0.12 times).

Industry decides which route is open. Medians for the 350 by SEC industry division:

A utility such as Southern Company kept 24.65 cents per dollar of sales, far more than Walmart, yet earned only 4.68% on its assets, because its grid and plants turned over 0.19 times a year. The same is true of the toll roads, grids and pipelines held in an infrastructure fund: heavy assets, slow turnover, a modest ratio even when margins are wide.

Across all 440 filers, finance included, the medians ran from 8.60% in retail trade through 8.17% in mining, 7.53% in services, 6.85% in manufacturing and 5.82% in wholesale trade, down to 4.71% in transport, telecom and utilities; finance sat at 4.83%.

Year-end vs average assets, across the 381. All 381 also had a balance sheet about a year earlier in the frames. On average assets the median rose from 6.49% to 6.86%, the ratio was higher for 305 of them (assets mostly grew), and 39 companies moved 10 or more places in the ranking.

Among the 42 whose assets grew 20% or more in the year, the median gap was 0.94 points. Home Depot moved from 20th to 18th and Lowe’s from 23rd to 17th. Every company’s operating income, revenue, both asset figures and all three ratios are in the margin, turnover and average-assets file; the earlier large-filer file carries the accession numbers, and the industry division file the division medians in the bar chart.

Checked against Nasdaq. For the 24 largest listed non-financial companies in the sample, Nasdaq’s annual statements gave the same operating income and total assets to within 0.5% for every one (SEC and Nasdaq comparison file).

How to raise basic earning power

Only two levers exist, because the ratio is margin times turnover. A company can keep more of each sales dollar (price, mix, costs) or sell more from the same assets (faster inventory, fewer idle stores, selling unused property). Walmart and Amazon show the two extremes landing in the same place.

Shrinking the denominator also works, which is the trap. Selling assets, leasing instead of owning, or simply letting depreciation run all lift the ratio without the business earning a dollar more.

Earnings-release days are when these figures reach the market. In the Dow 30 those days took 12.91% of squared daily moves while being only 1.66% of sessions, per fundamental analysis vs price action, so a sharp change in margin or turnover tends to be priced in one session.

Setting it against the cost of borrowing

The ratio is the pre-tax return the assets earn before any interest is paid. If a company borrows at a rate below its basic earning power, each borrowed dollar earns more than it costs before tax, and return on equity rises. If it borrows above that rate, the debt subtracts from what shareholders keep.

That is the lender’s use of it. A credit analyst reads it against the rate on a proposed loan, and the interest coverage ratio turns the same idea into dollars: EBIT divided by the interest bill. Home Depot’s $20.890 billion of operating income covered its $2.412 billion of interest expense about 8.7 times.

When it fails

Assets that are not on the balance sheet. A software company can show a ratio several times a manufacturer’s because its productive assets are people and code that accounting records mostly as expenses. The ratio measures what the balance sheet recognizes, not what produces the profit.

Acquisitions. Buying a company adds its price, including goodwill, to assets at once, while its profit arrives over time. Home Depot’s goodwill rose from $8.455 billion to $22.344 billion in two fiscal years and its ratio fell from 28.34% to 19.88%; with goodwill taken out of assets, the latest year reads 25.24% (Lowe’s, 20.23%).

Old, depreciated assets. Depreciation shrinks the denominator as equipment ages, flattering the ratio until the replacement bill arrives.

One year, or two industries. Home Depot’s ratio ran from 19.88% to 32.06% in six years, and a utility at 5% and a retailer at 9% can both be ordinary for their division.

Mixed definitions. Switching from year-end to average assets alone moved Lowe’s by 2.13 points in the example above. Two ratios built differently are not comparable.

Reading it as an investor’s return. Shareholders receive what is left after interest and tax, and what they earn depends on the price they paid.

Questions people ask

What is a good basic earning power ratio?

There is no single number, because industry sets the level. In fiscal 2025 the median across 381 large non-financial SEC filers was 6.49%, half sat between 3.57% and 10.30%, and fewer than one in twenty reached 20%. Compare a company with its own industry and its own history.

Is basic earning power the same as return on assets?

No. Return on assets usually divides net income, after interest and tax, by total assets, so borrowing and tax move it. Basic earning power uses EBIT. Home Depot’s latest year: 19.88% against 13.47%.

Should I use total assets or average total assets?

Either, as long as every company in the comparison uses the same one. Year-end is simpler and matches most definitions; average assets is fairer to a company that grew during the year, and it moved Lowe’s from 18.75% to 20.88%.

Can basic earning power be negative?

Yes, whenever operating income is a loss. 44 of the 381 large non-financial companies, 11.55%, had a negative ratio in fiscal 2025, Ford and Intel among them.

Related

Debt-to-equity ratio covers the financing this ratio leaves out. Retained earnings covers how kept profit builds up on the balance sheet, and how buybacks can push it, and equity, down. And shareholders’ equity covers the figure that went negative at Lowe’s.

This page is educational, not financial advice. Test every idea on your own charts before risking money.