Break-even is the crucial stage in the life of the company when it stops having losses and starts making profits. Break-even analysis is based on the information available in the income statements and cash flows. It shows the moment in which to reach the amount of revenue that is needed to balance all fixed and variable costs already incurred.
In accounting terms break-even point (BEP) is the point at which costs equal revenue: there is neither loss nor gain and the firm has ‘broken even’.
Before breaking even the company losses money on its operating activity as expenses are greater than revenue from sales. As the company keeps on trading every unit sold makes a ‘contribution’ towards absorbing fixed costs equal to the difference or ‘margin’ between unit selling price and the unit purchase cost of a license.
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