Earning Potential

Written By
Paul Tracy
Updated July 16, 2021

What is Earning Potential?

Earning potential often refers to the top salary for a particular field or profession. In the finance world, the meaning is not much different: earning potential is the biggest profit a company could potentially make.

How Does Earning Potential Work?

Let's assume Company XYZ sold $200,000,000 of widgets last year and made a profit of $15,000,000. Widget technology is changing rapidly, and Company XYZ not only has the brightest minds in the industry to take advantage of this technology, it also expects to be the first company in the industry to implement the technology, which roughly halves certain production expenses. Thus, analysts estimate that Company XYZ has another, say, $12,000,000 of earning potential.

Why Does Earning Potential Matter?

Earning potential is really an indication of the possibility of dividends or stock price increases. After all, when a company has greater earning potential, it essentially has a pot of untapped money. Investors who realize this can often pick up shares of the company cheaply -- and then ride the stock up and/or collect bigger dividends as the company taps into that earning potential. In turn, earning potential heavily influences the expected growth rate variable found in so many financial calculations. The risk, of course, is that the company does not realize the expected earning potential.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Earning Potential.
Be the first to ask a question

If you have a question about Earning Potential, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Earning Potential, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Earning Potential

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms