Breakeven Analysis

Another useful area of analyzing a company is called breakeven analysis. As a company,we need to quantify how much we need to sell in order to not lose money. Breakeven means that we didn’t earn any money yet we didn’t lose any money either.

Understanding fixed costs and variable costs is key for breakeven analysis. Fixed costs do not depend on the amount of activity that we have. Variable costs completely depend on the amount of activity that we have.

Study Tip 😀

Breakeven Analysis asks, “How much do we need to sell in order to not lose money?” This can be measured in units or sales dollars.