What is Break-even Analysis?Break even analysis is the amount of sales (often measured in Units) that must be sold to break even.
We can complicate it if we want and change the break even definition (such as we have to break even including the cost of equity) but in the simplest form it is just the sales needed to show an accounting profit.
It is often used to look at the degree of operating leverage a firm has. The higher the break-even, the more volatile the firm (holding other things equal).
it is calculated by:
Fixed costs/(contribution margin)
Where contribution margin equals selling price - variable costs.
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