Break-even analysis

D. Break-even analysis sales volume needed to cover fixed and variable costs... 

Pressly, T.G. Ng, K.M. A break-even analysis of distillation-membrane hybrids. AIChE. 1998,44,93-105. 

The production capacity of a process is determined by market demands. When the break-even analysis of a process flow scheme indicates losses at the maximum marketing level, its production capacity cannot be increased to reduce product cost. The process design engineer must reduce... 

Figure A5 illustrates a real dollar, life-of-plant, break-even analysis for coal, nuclear, and wind technologies compared with natural gas prices. The break-even natural gas fuel price with coal, nuclear, and wind are (in /MBtu) 4.45, 5.61, and 5.78, respectively. For comparison, the assumed DOE natural gas fuel price is 5.92 /MBtu. Given the relative...

The term break-even analysis is often used to express the same concept for a single input variable. Here, the value of the input variable at which the decision is changed is determined. If the breakeven point lies within the range of expected values, the decision is said to be sensitive to that point. Thus, sensitivity and the break-even point are directly related. 

Bayesian inference, 138-139, 2184-2185 Bayes rule, 2184-2187 BE analysis, see Break-even analysis Before-tax cash flow analysis, inflation in, 2401-2403 Behavior ... 

Therefore, the break-even analysis allows to determine the spread that equals the price of a conventional bond to the one of an inflation-linked bond. This approach assumes a risk-neutral pricing by which an investor treats conventional and inflation-linked bonds the same. Under break-even hypothesis, both bonds have the same nominal yield. Note if the inflation breakeven is greater than expected inflation, for an investor is favorable to buy a conventional bond. Conversely, the inflation-linked bond is more attractive. If inflation breakeven and expectations are equal, the investor bond s choice will be then indifferent. Figure 6.2 shows the trend of UKGGBEIO and UKGGBE20 Index... 

Suppose the retailer were to buy from the manufacturer every k days. Dropping the retail price by X, will cause the low-holding-cost customers to do a break-even analysis and thus buy —-— units and stock up. This... 

It is important for firms to project their cash flow. This ensures that they will have funds on hand to pay their bills and their payroll and to invest in new projects. Cash flow is watched carefully by the finance department, because it is possible for a firm to make a profit on paper and still go broke because they do not have the cash needed to pay bills. When a firm invests in a new plant or new equipment, someone estimates the cash flow to calculate how the investment will influence the firm s ability to pay bills and dividends. In the example above the expenses were shown only as fixed or variable and the calculation was not concerned with the time period in which the expenses had to be paid. Likewise, the sales revenue was calculated on a per unit basis, but the sales may come at different time periods and some of the money for the sales may not be collected immediately. Based on historical records and contracts with suppliers and customers, the firm estimates its cash flow over the relevant time period. The cash flow analysis is shown in Table 3.1 for the example above. The cash flow analysis provides new information that the break-even analysis did not provide. It uses the period-by-period forecast to estimate when the firm will receive money and when it will pay out money. For the first seven months of the project the firm will have negative cash flow of 56,000. Then as sales pick up it will alternate positive and negative cash flows. Part of the reason for this is that revenue will be received 30 days after the product is sold, but the expenses to produce the product will be paid the month earlier. 

The measurements of net profit, cash flow, and ROI tell the manager whether a firm is making money and what its relative performance is. Obviously when managers need to make decisions in the course of daily business, they will try to increase profit, cash flow, and ROI. But, it is not always immediately obvious in many decisions which alternative will maximize this return. The break-even analysis and present value analysis do provide information about investments, but they do not provide insight into decisions about how to schedule the equipment and which orders to accept given certain capacity constraints. 

Break-even analysis has, however, been criticised by Dyson on the following grounds ... 

Break-Even Analysis Capital Asset Pricing Model Cause-and-Effect Analysis Cognitive Mapping Customer ProhtabUity Matrix Directional Policy Matrix Five "S" Strategy Market Value Added (MVA)... 

The related argument here is that of break-even time rather than the break-even volumes discussed in Chapter 3. Traditional break-even analysis focuses on the volume of product needed to be moved before the investment pays off. Given shortening times-to-market and compressed product life cycles (e.g. from 6 months to 45 days of shelf-life for Nike footwear) the analysis shifts towards the question how long before break-even is reached Figure 5.1 illustrates the point. 

Break-even analysis provides managers with information needed for introducing new products, offering sales promotions, and entering new... 

Alternately, break-even analysis can be used as a make or buy and as a supplier comparison tool. Businesses need to determine whether or not to outsource manufacturing or other business processes based on production and facility capacity requirements. Break-even analysis can be useful in these decisions. In these types of scenarios, fixed and variable costs and expected production volumes are the focuses, not necessarily the price per unit. Break-even analysis is referred to as cost-volume analysis in such cases. 

In practice, it can be difficult to compute an exact break-even point because of the varying demands of customers, differences in selling prices, fluctuating costs, and changing capacity levels. Nonetheless, break-even analysis is a useful exercise that provides many insights into a business. 

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