What is Break-Even Analysis?
Break-Even Analysis
Break-even analysis is a technique for analyzing how
revenue, expenses and profit vary with changes in sales volume. One
useful tool in tracking your business's cash flow is a break-even analysis.
It's a fairly simple calculation and can prove very helpful in deciding whether
to make an equipment purchase or in knowing how close you are to your
break-even level. Here are the variables needed to compute a break-even sales
analysis:
- Gross profit margin
- Operating expenses (less depreciation)
- Annual debt service (total monthly debt payments
for the year)
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