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 inter ...

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 f ...

but the concept has been applied in other fields.

In economics

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

and

business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...

, specifically

cost accounting Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, al ...

, 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 Contribution margin (CM), or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. "Contribution" represents the portion of sales revenue that is not consumed by variable costs and so contributes to the covera ...

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 Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...

. 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 f ...

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 fo ...

required to develop a project.

In other fields

nuclear fusion Nuclear fusion is a reaction in which two or more atomic nuclei are combined to form one or more different atomic nuclei and subatomic particles ( neutrons or protons). The difference in mass between the reactants and products is manife ...

research, the term ''break-even'' refers to a fusion energy gain factor equal to unity; this is also known as the

Lawson criterion The Lawson criterion is a figure of merit used in nuclear fusion research. It compares the rate of energy being generated by fusion reactions within the fusion fuel to the rate of energy losses to the environment. When the rate of production i ...

. The notion can also be found in more general phenomena, such as

percolation Percolation (from Latin ''percolare'', "to filter" or "trickle through"), in physics, chemistry and materials science, refers to the movement and filtering of fluids through porous materials. It is described by Darcy's law. Broader applicatio ...

. In energy, the break-even point is the point where usable energy gotten from a process equals the input energy. In

computer science Computer science is the study of computation, automation, and information. Computer science spans theoretical disciplines (such as algorithms, theory of computation, information theory, and automation) to Applied science, practical discipli ...

, the term (used infrequently) refers to a point in the life cycle of a

programming language A programming language is a system of notation for writing computer programs. Most programming languages are text-based formal languages, but they may also be graphical. They are a kind of computer language. The description of a programming ...

where the language can be used to code its own

compiler In computing, a compiler is a computer program that translates computer code written in one programming language (the ''source'' language) into another language (the ''target'' language). The name "compiler" is primarily used for programs tha ...

or interpreter. This is also called self-hosting. In

medicine Medicine is the science and practice of caring for a patient, managing the diagnosis, prognosis, prevention, treatment, palliation of their injury or disease, and promoting their health. Medicine encompasses a variety of health care pr ...

, 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 Union of European Football Associations (UEFA ; french: Union des associations européennes de football; german: Union der europäischen Fußballverbände) is one of six continental bodies of governance in association football. It governs fo ...

. It is known as

UEFA Financial Fair Play Regulations The UEFA Financial Fair Play Regulations (FFP) are a set of regulations established to prevent professional football clubs spending more than they earn in the pursuit of success, and in doing so not getting into financial problems which might th ...

. 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