Break-even

Break-even (or break even), often abbreviated as B/E in finance, is the point of balance making neither a profit nor a loss. The term originates in finance, but the concept has been applied widely since.

In economics

In economics and business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even." A profit or a loss has not been made, although opportunity costs have been "paid" and capital has received the risk-adjusted, expected return. In other words, it´s the point in which the total revenue of a business exceed its total costs, and the business begins to create wealth instead of consuming it.[1] It is shown graphically as the point where the total revenue and total cost curves meet. In the linear case the break-even point is equal to the fixed costs divided by the contribution margin per unit.

The break-even point is achieved when the generated profits match the total costs accumulated until the date of profit generation. Establishing the break-even point helps businesses in setting plans for the levels of production which it needs to maintain be profitable.[2]

In finance

The accounting method of calculating break-even point does not include cost of working capital. The financial method of calculating break-even, called value added break-even analysis, is used to assess the feasibility of a project. This method not only accounts for all costs, it also includes the opportunity costs of the capital required to develop a project.[3]

In other fields

In nuclear fusion research, the term "break-even" refers to a fusion energy gain factor equal to unity; this is also known as the Lawson criterion. The notion can also be found in more general phenomena, such as percolation. In energy, the break-even point is the point where usable energy gotten from a process equals the input energy.

In computer science, the term (used infrequently) refers to a point in the life cycle of a programming language where the language can be used to code its own compiler or interpreter. This is also called self-hosting.

In medicine, it is a postulated state when the advances of medicine permit every year an increase of one year or more of the life expectancy of the living, therefore leading to medical immortality,[4] barring accidental death.

References

  1. ↑ Levine, David; Michele Boldrin (2008-09-07). Against Intellectual Monopoly. Cambridge University Press. p. 312. ISBN 978-0-521-87928-6.
  2. ↑ "BBC - GCSE Bitesize: Breakeven point". Retrieved 2015-09-08.
  3. ↑ Brealey, R., Myers, S., Marcus, A., Maynes, E., Mitra, D. 2009. Fundamentals of Corporate Finance. McGraw-Hill Ryerson. USA. pp. 284. ISBN 978-0-07-098403-5
  4. ↑ Ray Kurzweil & Terry Grossman (2004). Fantastic Voyage: Live Long Enough to Live For Ever. Rodale Books. ISBN 978-1579549541.
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