Introduction
Break-even analysis comprises of the calculation and examination of the safety margin for an entity based on the revenues collected and associated costs.
Understanding Break-Even Analysis
A break-even analysis can be used in a business to determine the level of sales required to cover the company's total fixed costs. The analysis is used broadly from stock and options trading to corporate budgeting for various projects. It determines the production or a targeted desired sales mix.
Factors to consider before you invest
Break-even analysis makes a comparative analysis of the level of fixed costs in terms of the profit earned by each additional unit produced and sold. Generally, a company with lower fixed costs will have a lower break-even point of sale.
For example, a company with zero fixed costs will automatically break evenly upon the sale of the first product. The assumption here is that the variable costs do not exceed sales revenue.
