Earning power is the proven ability of an individual, company, or security to generate earnings or profits over time, assuming conditions are optimal. While there are various ways to calculate the exact range of earning strength, many methods involve considering the total assets of the entity, including any growth or loss that has taken place from one accounting period to the next.
The general concept of earning power is helpful in creating and refining a sound financial strategy for households as well as for multinational corporations.
For individuals, earning power is often determined by the amount of income that the individual has demonstrated the ability to produce in a given period, usually monthly or annually. The core factor of this type of calculation is based on the salary or wages earned through a full-time job.
In situations where individuals develop secondary income streams, those earnings are also considered to be part of the overall income-producing effort for the period. There is some difference of opinion as to whether individuals should calculate this figure based on gross or net income. However, as long as the method is consistent, either figure will suffice.
