![]() When Break-Even Point Analysis Can Be Used? ![]() ![]() Now, if this is applied to a put option, then the breakeven point would be calculated as the INR 100 strike price minus the INR 10 premium paid, amounting to INR 90. Then, the breakeven point will be equal to the premium plus the strike price, which is INR 110. For instance, if an investor pays INR10 as premium for a stock call option, and the strike price is INR 100. So, if the price stays at INR 100, they are very much at the BEP, because the investor at this price point is not making or losing anything.Įxample 2: Break-even point is calculated differently in options trading. And, if the stock drops below INR 100, they are losing money. So, if the price moves above INR 100, obviously, the investor is making money. Let’s see through an example, how to calculate the BEP in terms of stock market and options trading.Įxample 1: An investor buys XYZ company stock at INR 100, this price-point is now their breakeven point on the trade. However, in the world of investing, the break-even point is achieved when the market price of an asset is the same as its original cost. To derive break-even point in INR: Multiply 5,000 units with the selling price of INR 600 per unit.īreak-Even Sales 5,000 units x INR 600 = INR 30 lakh (Break-even point in rupees) Investment Break-Even Point Calculation *The contribution margin = (sales price per unit – variable costs per unit) / sales price per unitĪs to calculate the break-even point per unit, divide the INR 10,00,000 (fixed costs) by the INR 200 which is the contribution per unit, calculated as: INR 600 – INR 400 (Sales/unit- Variable costs/unit)īreak-Even Point (Unit) = INR 10,00,000/ INR 200 = 5000 units. Break-even point in sales (INR) = Fixed costs / contribution margin.Break-even point per unit = Fixed costs / (sales price per unit – variable costs per unit).Variable costs change as per how much a company produces or sells units such as electricity cost, packaging and raw material cost, wages. Variable Costs: These are the expenses which are directly related to the production volume of the company. This simply means that even in case of zero production, the fixed costs have to be incurred. Mostly, low fixed costs will have a low break-even point of sale.įixed Costs: These are also known as overhead costs or expenses which remain the same and do not change with the varying output such as loan payments, rent, insurance or taxes. The total cost here comprises fixed and variable costs. This BEP analysis helps in determining the number of units or revenue needed to cover the total costs. For instance, in the world of finance and economics, the break-even point refers to the stage where total cost and total revenue becomes equal. Revenue = Total Variable Cost + Total Fixed Cost How to Calculate the Break-Even Point? Business Break-Even Point Calculationīreak-even calculation is applied to a huge variety of contexts. BEP simply shows that all the costs have been covered, which means: Upon reaching the break-even point means, a business is not either making a profit or loss and thus it is referred as the no-profit or no-loss point. The BEP analysis is considered as a crucial and important financial tool which helps an entity to determine the stage at which the company or any new product will be termed as profitable. What is Break-Even Point?īreak-even point is used in multiple ways in the field of business, finance and investing. So, what exactly does the break-even point mean and at what stage one achieves this? Here’s a detailed guide on the meaning of break-even point and how to determine and calculate it. ![]() ![]() In this era of start-ups and unicorns, every smart business person would want to know when their business is going to be profitable or when will they reach a break-even point (BEP)? There are other queries in mind as well such as: Is it better to change the pricing structure to fetch profits or how to gain more profits than just recurring losses? It is the break-even point analysis which helps to figure out the answers of these above-mentioned questions. ![]()
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