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The Breakeven Point is, in general, the point at which the gains equal the losses. A breakeven point defines when an investment will generate a positive return. The point where sales or revenues equal expenses. Or also the point where total costs equal total revenues. There is no profit made or loss incurred at the breakeven point. This is important for anyone that manages a business, since the breakeven point is the lower limit of profit when prices are set and margins are determined. Achieving Breakeven today does not return the losses occurred in the past. Also it does not build up a reserve for future losses. And finally it does not provide a return on your investment (the reward for exposure to risk). The Breakeven method can be applied to a product, an investment, or the entire company's operations and is also used in the options world. In options, the Breakeven Point is the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a Call, it is the strike price plus the premium paid. For a Put, it is the strike price minus the premium paid. The relationship between fixed costs, variable costs and returnsBreakeven analysis is a useful tool to study the relationship between
fixed costs, variable costs and returns. The Breakeven Point defines when
an investment will generate a positive return. It can be viewed graphically
or with simple mathematics. Breakeven analysis calculates the volume of production
at a given price necessary to cover all costs. Breakeven price analysis calculates
the price necessary at a given level of production to cover all costs. To
explain how breakeven analysis works, it is necessary to define the cost
items. In Value Based Management terms, a breakeven point should be defined as the Operating Profit margin level at which the business / investment is earning exactly the minimum acceptable Rate of Return, that is, its total cost of capital. Breakeven Point calculationCalculation of the BEP can be done using the following formula:
Benefits of Breakeven AnalysisThe main advantage of breakeven analysis is that it explains the relationship between cost, production volume and returns. It can be extended to show how changes in fixed costvariable cost relationships, in commodity prices, or in revenues, will affect profit levels and breakeven points. Breakeven analysis is most useful when used with partial budgeting or capital budgeting techniques. The major benefit to using breakeven analysis is that it indicates the lowest amount of business activity necessary to prevent losses. Limitations of breakeven analysis
Book: Marcell Schweitzer  BreakEven Analyses: Basic Model, Variants, Extensions 
Compare with Breakeven Point: CFROI  Economic Value Added  CostBenefit Analysis  Free Cash Flow  Net Present Value Return to Management Hub: Decisionmaking & Valuation  Finance & Investing  Marketing  Supply Chain & Quality 

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