break-even-analysis

Vocabulary Word

Definition

'Break-even analysis' is a key financial tool. It calculates the point at which revenues equals costs, meaning you're neither making a loss nor profit. It helps businesses price products and assess future profitability.

Examples in Different Contexts

In financial planning, 'break-even analysis' is a tool used to determine the point at which a business or project will be able to generate enough revenue to cover its costs. A financial planner might say, 'Our break-even analysis indicates that we need to increase our sales volume to lower the break-even point and start generating profit sooner.'

Practice Scenarios

Business

Scenario:

From your projections, it appears our upcoming project will incur significant upfront costs. What volume of sales is required to cover these costs?

Response:

Based on the break-even analysis, we have to sell at least 5,000 items of the new product to cover the initial investment costs.

Product

Scenario:

The development costs for our new product are substantial. Do we have a clear sense of the sales target required to offset this?

Response:

According to our break-even analysis, we have to sell roughly 4,000 units of the new product to cover the development costs.