Maggie’s Skunk Removal Corp.’s 2021 income statement listed net sales of $14.4 million, gross profit of $9.40 million, EBIT of $7.5 million, net income available to common stockholders of $5.1 million, and common stock dividends of $3.1 million. The 2021 year-end balance sheet listed total assets of $54.4 million and common stockholders’ equity of $22.9 million with 2.0 million shares outstanding. Calculate the basic earnings power.

The Basic Earning Power (BEP) ratio measures a company's ability to generate earnings from its assets before interest and taxes. It is calculated as:

\[
\text{BEP} = \frac{\text{EBIT}}{\text{Total Assets}}
\]

Where:
- EBIT (Earnings Before Interest and Taxes) = \$7.5 million
- Total Assets = \$54.4 million

Substituting these values into the formula:

\[
\text{BEP} = \frac{7.5}{54.4} = 0.1379
\]

So, the Basic Earning Power (BEP) is approximately **13.79%**.

Would you like further details on how this ratio is useful or any other related calculations?

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Here are five related questions:
1. How does BEP compare to Return on Assets (ROA)?
2. What would the BEP be if EBIT increased by 10%?
3. How can the BEP help in assessing a company's operational efficiency?
4. What role do interest expenses play in differentiating BEP from other profitability metrics?
5. How can the BEP influence investor decisions?

**Tip:** A higher BEP suggests that the company is effectively utilizing its assets to generate income before financing costs.

Learn how to calculate the Basic Earning Power (BEP) for Maggie’s Skunk Removal Corp. using their 2021 financial data. This problem covers key corporate finance concepts, such as financial ratios and the BEP formula. Suitable for undergraduate finance students.

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