Definition of Break-Even

Break-Even

This is a term used to describe a point at which revenues equal costs.

Break-even analysis

An analysis of the level of sales at which a project would make zero profit.

Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.

Break-even payment rate

The prepayment rate of a MBS coupon that will produce the same CFY as that of
a predetermined benchmark MBS coupon. Used to identify for coupons higher than the benchmark coupon
the prepayment rate that will produce the same CFY as that of the benchmark coupon; and for coupons lower
than the benchmark coupon the lowest prepayment rate that will do so.

Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.

Break-even time

Related: Premium payback period.

Cash-flow break-even point

The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.

break-even chart

a graph that depicts the relationships among revenues, variable costs, fixed costs, and profits (or losses)

break-even point (BEP)

the level of activity, in units or dollars, at which total revenues equal total costs

break-even analysis

Analysis of the level of sales at which the company breaks even.

Break-Even Analysis

An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).

Breakeven point

The point at which total costs equal total revenue, i.e. where there is neither a profit nor a loss.

breakeven point

The annual sales volume level at which total contribution
margin equals total annual fixed expenses. The breakeven point is only a
point of reference, not the goal of a business, of course. It is computed by
dividing total fixed expenses by unit margin. The breakeven point is
quite useful in analyzing profit behavior and operating leverage. Also, it
gives manager a good point of reference for setting sales goals and
understanding the consequences of incurring fixed costs for a period.

Breakeven point

The sales level at which a company, division, or product line makes a
profit of exactly zero, and is computed by dividing all fixed costs by the average
gross margin percentage.

Break

A rapid and sharp price decline.

Breakout

A rise in a security's price above a resistance level (commonly its previous high price) or drop
below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing
move in the same direction. Can be used by technical analysts as a buy or sell indicator.

Evening up

Buying or selling to offset an existing market position.

Event risk

The risk that the ability of an issuer to make interest and principal payments will change because
of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural
or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

Event study

A statistical study that examines how the release of information affects prices at a particular time.

Events of default

Contractually specified events that allow lenders to demand immediate repayment of a debt.

Group of seven (G7/G-7)

The G-5 countries plus Canada and Italy.

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Total revenue

Total sales and other revenue for the period shown. Known as "turnover" in the UK.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

Revenue

Income earned from the sale of goods and services.

Revenue

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.

Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)

incremental revenue

the revenue resulting from an additional contemplated sale

prevention cost

a cost incurred to improve quality by preventing
defects from occurring

revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs

Revenue

An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.

Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.

Internal Revenue Code

Refers to all federal tax laws as a group.

Internal Revenue Service

A federal agency empowered by Congress to interpret and enforce tax-related laws.

Fictitious Revenue

Revenue recognized on a nonexistent sale or service transaction.

Premature Revenue

Revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.

Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.

Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.

Revenue Recognition

The act of recording revenue in the financial statements. Revenue should
be recognized when it is earned and realized or realizable.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.

Service Revenue

Revenue recognized from the provision of services as opposed to the sale of
products.

Deal Breaker

A deal breaker is a significant issue relating to the proposed financing between the prospective investor and the entrepreneur that needs to be resolved in order to close the deal.

Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.

Margin of safety

A measure of the difference between the anticipated and breakeven levels of activity.

contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed
expenses.

fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.

margin of safety

the excess of the budgeted or actual sales
of a company over its breakeven point; it can be calculated
in units or dollars or as a percentage; it is equal to
(1 - degree of operating leverage)

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