Break Even Analysis Law and Legal Definition

Break-even analysis shows the point in time at which money put into an effort is equal to or greater than its return. The break-even point is the point where the business neither makes a profit nor sustains a loss. This is the point where the net income is equal to zero.

Break even analysis may be used to calculate current business break even point using revenue, variable, and fixed cost inputs. This may be combined with price elasticity (estimates for price and sales volume variations) to produce revenue and surplus (profit/loss) forecasts by price. One of the aims of such analysis is to determine the optimum pricing to maximize surplus and it can be applied to new or established businesses, product/service lines, or individual items.