Break-even (or break even), often abbreviated as B/E in finance, (sometimes called point of equilibrium) is the point of balance making neither a

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory intere ...

nor a loss. Any number below the break-even point constitutes a loss while any number above it shows a profit. The term originates in

finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

but the concept has been applied in other fields.

In economics

In economics and

business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...

, 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 loss has not been made, although

opportunity cost In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for example ...

s have been "paid" and capital has received the risk-adjusted, expected return. In other words, it is the point at which the total revenue of a business exceeds its total costs, and the business begins to create wealth instead of consuming it. 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 it needs to maintain to be profitable.

In finance

The accounting method of calculating break-even point does not include cost of working capital. The

financial Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

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

s of the

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...

required to develop a project.

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, barring accidental death. In

soccer Association football, more commonly known as football or soccer, is a team sport played between two teams of 11 players who primarily use their feet to propel the ball around a rectangular field called a pitch. The objective of the game is ...

, the break-even requirement was adopted by UEFA. It is known as UEFA Financial Fair Play Regulations. Its purpose is to prohibit clubs from spending more money on transfers than they earn as businesses, i.e. revenue per each fiscal year excluding donations from sponsors or advertisers.Page 38 (44 in PDF)
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References

{{DEFAULTSORT:Break even Profit Pricing Management accounting