Reading the accounts
Breakeven
The level of sales at which revenue exactly covers costs and profit is zero.
How it works
Below breakeven a company consumes cash; above it, each additional sale contributes at the gross margin rate.
For loss-making growth companies, the distance to breakeven and the cash available to reach it are the two numbers that decide whether they survive independently.
Formula
Breakeven revenue = fixed costs ÷ gross margin percentageRelated terms
- Fixed costsCosts that do not change with how much a company sells, at least in the short run.
- Operating leverageHow much profits amplify revenue changes, because some costs stay fixed as sales move.
- Cash burnThe rate at which a loss-making company is consuming its cash reserves.
- RunwayHow long a loss-making company can operate before it runs out of cash at the current burn rate.
More in Reading the accounts
- Capital expenditure
- Book value
- Balance sheet
- Cash conversion cycle
- Audit opinion
- Cash flow statement
- Assets
- Cost of goods sold
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.