The quantification of the flow irreversibilities is crucial to developing future turbomachinery. Traditionally, design correlations and efficiencies are based on comparisons to isentropic relations to quantify the deviation from an “ideal” case. However, isentropic relations typically assume one-dimensional adiabatic flow, representing a significant departure from the actual situation in turbines operating with large levels of heat transfer. In this paper, the aerothermal losses and power generation in reversible processes are derived for three-dimensional compressible flow considering heat transfer effects. A new definition of the power potential in a reversible process is proposed that can be used to perform detailed budgeting of the losses. The proposed new loss framework can be adopted locally, which enables the precise identification of the loss source. New aerodynamic and aerothermal efficiency expressions are proposed to assess shaft power extraction in combination with heat exchange. The new method enables designers to identify the regions with high loss generation in steady and also in unsteady flow conditions, offering new avenues to evaluate the loss generation mechanisms during the design phase. Therefore, our new tool is essential to developing reduced-order models for the design of future fluid machinery.