What is ‘Earning Potential’
The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock.
Explaining ‘Earning Potential’
Although earning potential can cause a stock’s price to rise, it will not necessarily translate into higher current dividends. A company that comes out with an innovative new product may have higher earning potential in the future, but the projected revenue may not translate into actual profit for some time.
Further Reading
- Trends in park tourism: Economics, finance and management – www.tandfonline.com [PDF]
- Economic value added, future accounting earnings, and financial analysts' earnings per share forecasts – link.springer.com [PDF]
- The economic implications of corporate financial reporting – www.sciencedirect.com [PDF]
- The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative? – www.sciencedirect.com [PDF]
- Earnings management and earnings quality – www.sciencedirect.com [PDF]
- Earnings management under German GAAP versus IFRS – www.tandfonline.com [PDF]
- Financial analysts' forecasts of earnings: A better surrogate for market expectations – www.sciencedirect.com [PDF]
- Choice of auditors and earnings management during the Asian financial crisis – www.emerald.com [PDF]
- Earnings management and audit quality in Europe: Evidence from the private client segment market – www.tandfonline.com [PDF]
