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breakeven

 
Dictionary: break·e·ven or break-e·ven (brāk'ē'vən) pronunciation
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adj.
Marked by or indicating a balance, especially between investment and return.

n. In both senses also called break-even point.
  1. The point, especially the level of sales of a good or service, at which the return on investment is exactly equal to the amount invested.
  2. The point at which the energy put into a system is equalled by the energy produced by that system: reaching breakeven in controlled fusion reactions.

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Financial & Investment Dictionary: Breakeven
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Finance: the point at which sales equal costs. The point is located by breakeven analysis, which determines the volume of sales at which fixed and variable costs will be covered. All sales over the breakeven point produce profits; any drop in sales below that point will produce losses.

Because costs and sales are so complex, breakeven analysis has limitations as a planning tool and is being supplanted by computer based financial planning systems. See also Leverage (operating).

Securities:

1. Dollar price at which a transaction produces neither a gain nor a loss.

2. The time required to recoup the dollar amount of the Conversion Premium from the interest income on a convertible instrument.

In options strategy the term has the following definitions:

1. Long calls and short uncovered calls: strike price plus premium.

2. long puts and short uncovered puts: strike price minus premium.

3. short covered call: purchase price minus premium.

4. short put covered by short stock: short sale price of underlying stock plus premium.

Business Dictionary:

BREAK-EVEN POINT

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Finance: point at which revenues equal costs. The point is located by break-even analysis, which determines the volume of sales at which fixed and variable costs will be covered. All sales over the break-even point produce profits; any drop in sales below that point will produce losses.

Real estate: occupancy level needed to pay for operating expenses and debt service, but leaving no cash flow. See also cash flow; operating expenses.

Securities: dollar price at which a transaction produces neither a gain nor a loss.

Real Estate Dictionary: Break-Even Point
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The amount of Rent or the Occupancy Level needed to pay Operating Expenses and Debt Service. Also called Default point.

Break-even point = operating expenses and debt service

potential gross income
Example: Annual operating expenses for a 100-unit apartment complex are estimated at $600,000 per year. Debt service requirements are $750,000 per year. Therefore, total cash requirements are $1,350,000. If all apartments are rented all year, the Gross Income would be $1,800,000. The break-even point is at 75% occupancy. At that level, gross income would exactly equal cash requirements.

Idioms: break even
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Neither gain nor lose in some venture, recoup the amount one invested. For example, If the dealer sells five cars a week, he'll break even. This expression probably came from one or another card game (some authorities say it was faro), where it meant to bet that a card would win and lose an equal number of times. It soon was transferred to balancing business gains and losses. Novelist Sinclair Lewis so used it in Our Mr. Wrenn (1914). The usage gave rise to the noun break-even point, for the amount of sales or production needed for a firm to recoup its investment. [Late 1800s]

Hacker Slang: break-even point
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In the process of implementing a new computer language, the point at which the language is sufficiently effective that one can implement the language in itself. That is, for a new language called, hypothetically, FOOGOL, one has reached break-even when one can write a demonstration compiler for FOOGOL in FOOGOL, discard the original implementation language, and thereafter use working versions of FOOGOL to develop newer ones. This is an important milestone; see MFTL.

Since this entry was first written, several correspondents have reported that there actually was a compiler for a tiny Algol-like language called Foogol floating around on various VAXen in the early and mid-1980s. A FOOGOL implementation is available at the Retrocomputing Museum http://www.catb.org/retro/.

Poker Guide: Break Even
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This term describes when a player leaves a poker game or session with the same amount they bought in with.

SoundPoker Says: For exampl,e, if you went to the casino and bought in for $100, played for a few hours only to cash out at $100, you would have broken even with an overall net of zero dollars. It is important to remember that it is better to break even then it is to lose.

See Also: Add On, Bankroll, Busted, Buy In, Chips, Re-Buy

Wikipedia: Break-even
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Home > Library > Miscellaneous > Wikipedia
For the 2008 single by The Script, see Breakeven (song).
The Break-Even Point is where Total Costs equal Sales. In the Cost-Volume-Profit Analysis model, Total Costs are linear in volume.

In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.[1]

For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month.

If they think they cannot sell that much, to ensure viability they could: 1) Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs 2) Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3) Increase the selling price of their tables.

Any of these would reduce the break even point. In other words, the business would not need to make so many tables to make sure it could pay its fixed costs

Contents

Computation

In the linear Cost-Volume-Profit Analysis model,[2] the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:

\begin{align} \text{TR} &= \text{TC}\\ \text{P}\times \text{X} &= \text{TFC} + \text{V} \times \text{X}\\ \text{P}\times \text{X} - \text{V} \times \text{X} &= \text{TFC}\\ \left(\text{P} - \text{V}\right)\times \text{X} &= \text{TFC}\\ \text{X} &= \frac{\text{TFC}}{\text{P} - \text{V}} \end{align}

where:

  • TFC is Total Fixed Costs,
  • P is Unit Sale Price, and
  • V is Unit Variable Cost.
The Break-Even Point can alternatively be computed as the point where Contribution equals Fixed Costs.

The quantity \left(\text{P} - \text{V}\right) is of interest in its own right, and is called the Unit Contribution Margin (C): it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. Thus the break-even point can be more simply computed as the point where Total Contribution = Total Fixed Cost:

\begin{align} \text{Total Contribution} &= \text{Total Fixed Costs}\\ \text{Unit Contribution}\times \text{Number of Units} &= \text{Total Fixed Costs}\\ \text{Number of Units} &= \frac{\text{Total Fixed Costs}}{\text{Unit Contribution}} \end{align}

In currency units (sales proceeds) to reach break-even, one can use the above calculation and multiply by Price, or equivalently use the Contribution Margin Ratio (Unit Contribution Margin over Price) to compute it as: \text{Break-even(in Sales)} = \frac{\text{Fixed Costs}}{\text{C}/\text{P}}.

R=C Where R is revenue generated C is cost incurred i.e. Fixed costs + Variable Costs or Q X P(Price per unit)=FC + Q X VC(Price per unit) Q X P - Q X VC=FC Q (P-VC)=FC or Q=FC/P-VC=Break Even Point

Application

The break-even point is one of the simplest yet least used analytical tools in management. It helps to provide a dynamic view of the relationships between sales, costs and profits. A better understanding of break-even, for example, is expressing break-even sales as a percentage of actual sales—can give managers a chance to understand when to expect to break even (by linking the percent to when in the week/month this percent of sales might occur).

The break-even point is a special case of Target Income Sales, where Target Income is 0 (breaking even).

There is a myth that Black Friday is the annual break-even point in American retail sales, but in fact retailers generally break-even, and indeed profit, nearly every quarter.

Other uses of the term

The break even point is also the point on a chart indicating the time when something has broken even, and is a general term for not having gained or lost something in a process.

In nuclear fusion research, the term breakeven refers to a fusion energy gain factor equal to unity, this is also known as the Lawson criterion.

The notion can also be found in more general phenomena, such as percolation, and is rather similar to the critical threshold. In energy, the breakeven point is the point where usable energy gotten from a process exceeds the input energy.

In computer science, the term refers to a point in the life cycle of a programming language where the language can be used to code its own compiler or interpreter. This is also called self-hosting. This usually marks a transition from a "toy" language to a language usable in the real world.

In medicine, it is a postulated state when the advances of medicine permit every year an increase of one year or more of the life expectancy of the living, therefore leading to medical immortality[3](barring accidental death).

See also

References

  1. ^ Levine, David; Michele Boldrin (2008-09-07). Against intellectual monopoly. Cambridge University Press. pp. 312. ISBN 978-0521879286. http://www.dklevine.com/general/intellectual/againstfinal.htm. 
  2. ^ Where marginal costs and marginal revenues are constant, among other assumptions.
  3. ^ Kurzweil, Grossman; Ray Kurzweil and Terry Grossmandf. Fantastic Voyage: Live Long Enough to Live For Ever. 

External links

Further reading


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Copyrights:

Dictionary. The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2007, 2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.  Read more
Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Business Dictionary. Dictionary of Business Terms. Copyright © 2000 by Barron's Educational Series, Inc. All rights reserved.  Read more
Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2004 by Barron's Educational Series, Inc. All rights reserved.  Read more
Idioms. The American Heritage® Dictionary of Idioms by Christine Ammer. Copyright © 1997 by The Christine Ammer 1992 Trust. Published by Houghton Mifflin Company. All rights reserved.  Read more
Hacker Slang. The Jargon File. Copyright © 2007.  Read more
Poker Guide. ©2006 SoundPoker.com All rights reserved. Owned and Operated by Poker Interactive Inc.  Read more
Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Break-even".  Read more