What is the break-even point?
Method of calculating the break-even point
Fixed charges: what are they?
Variable loads: what are they?
How to calculate the break-even point?
How to calculate the breakeven point?
How to interpret the break-even point?
What is the break-even point?
The break-even point is an important concept for any business. It represents the level of turnover that the company must achieve during a given period to be at equilibrium, that is to say a result of zero.
From the break-even point, the company begins to make a profit. This is a very important threshold for any entrepreneur.
The break-even point is also called the break-even point, usually when it is expressed in terms of duration and not in terms of turnover.
Method of calculating the break-even point
To be able to calculate the break-even point, it is necessary to distinguish at company level two categories of expenses: fixed expenses and variable expenses.
Fixed charges: what are they?
Fixed charges, also called structural charges, are charges whose amount does not depend on the level of activity or sales of the company. These are charges that the company must incur over a given period unrelated to its turnover or production. These include, for example, rents, salaries of permanent staff, depreciation, insurance, leasing, etc.
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Variable loads: what are they?
Variable expenses, also called operating expenses, are the expenses incurred by the company in relation to its level of activity. The more the company increases its activity, the more the level of these charges also increases.
These include, for example, purchases of goods for trading activities or raw materials for industrial activities.
How to calculate the break-even point?
The starting point for calculating the break-even point is the company's profit and loss account (CPC account) which must be restated extra-accounting to distinguish between fixed and variable costs.
Break-even point (SR) = fixed costs / Margin rate on variable cost
Margin rate on variable cost = ((turnover – variable expenses) / turnover ) X 100
How to calculate the breakeven point?
Generally, breakeven is the interpretation of the break-even point in number of days instead of a level of turnover.
Breakeven point = Breakeven point / (annual turnover / 365)
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How to interpret the break-even point?
The break-even point provides a reference in terms of turnover. From X Dirhams (only profitability), the company covers its expenses and begins to make profits.
The break-even point is an indicator often used in investment decisions. When developing a business plan, it is necessary to calculate the break-even point to assess whether the level of turnover corresponding to the break-even point is achievable with the means available to the company.
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