Earning potential is a term that is often used in two types of applications. As it relates to investments, earning potential has to do with the amount of return that a given security can reasonably be anticipated to produce within a specified period of time. The term is also often used to identify the amount of money that an individual can earn from a specific business transaction or throughout his or her years as a member of the work force.
In terms of choosing investments, assessing earning potential is very important to investors. The process involves understanding the history of that investment and which factors occurred that led to the current value of that particular security. As part of the evaluation process, an investor will consider upcoming events or trends that are likely to influence the future movement of that security’s unit price, and determine if the potential return over the short-term or long-term is sufficient to merit buying or selling that asset. Once the investor has a good idea of the earning potential associated with that security, it is much easier to make an informed decision on how to proceed.
Earning potential is often an important consideration when choosing to enter a particular career field, or to accept a specific work position within that field. Individuals often look closely at how much can be earned over the years, determining if the monetary return is sufficient to justify whatever liabilities that may be associated with a given career path. Along with the desire for personal fulfillment within a career, the earning potential is often one of the factors that can either convince or dissuade an individual from choosing pursue a particular career or job option.
As part of preparing to increase earning potential throughout a lifetime, educators will often counsel students to obtain degrees or technical training that increase earning potential. Individuals who hold specialized degrees in certain areas are more likely to earn more during their lifetimes than those who do not choose to continue their education by enrolling at a college or university and successfully completing a degree program. In like manner, people who successfully secure training at a technical school are likely to earn more over the years than people who do not seek any type of training above the high school level. Today, participation in continuing education opportunities throughout the working years is also seen as a means of increasing value to employers and thus increasing earning potential.