The break-even point has applications in many areas of business and finance. Calculate break-even point is a useful tool for business administrators. Help them make decisions in business activities such as choosing products to produce. And determine the level of output that needs to be consumed. Understand the RSI calculation formula to choose fixed and variable cost structures to optimize business profits. To better understand the breakeven point, please read the following article on Forex Trading!
What is the break-even point?
The break-even point is the threshold at which total revenue equals the total costs of the business. When considering the break-even point, people often divide it into two categories:
- Economic break-even point (also known as break-even point before interest): This is where total sales revenue equals total production and business costs. At this point, the business’s profit before interest and taxes is zero.
- Financial break-even point (also known as break-even point after interest): This is where total sales revenue equals total costs, including interest payable during the period. At this point, the business’s pre-tax profit is zero.
So what is support and resistance? Support and resistance are price zones in the stock market. Where investors expect the trend to reverse or decelerate before continuing to move. This behavior may be repeated in the future.
Another knowledge you should also know is what is OBV? OBV is an on-balance volume indicator. And they are selling force on the stock market over time. This indicator tracks increases and decreases in stock trading volume over sessions to predict fluctuations in price trends.
See more: Learn Dow theory for trading beginners
How to calculate break-even point
To calculate break-even point, you can apply the following formula:
Break-even point = Total fixed costs / (Unit selling price – Variable cost of each product)
In there:
- Total fixed costs: are costs that do not change based on product output, such as rent, employee salaries, etc.
- Unit selling price: the price of each product you sell.
- Variable costs per product: are costs that vary depending on the quantity of products produced, for example, raw material costs, manufacturing costs, etc.
Once the break-even point has been established, the break-even revenue can be calculated by multiplying the break-even point by the unit selling price.
For example:
Suppose you are the owner of a business that manufactures and sells pens, with the following information:
- Monthly fixed costs: 3 USD
- Variable cost per pen: 2 USD
- The unit selling price of each pen: is 4 USD
To calculate the number of pens you need to sell to break even, use the formula:
Breakeven point = 70,000,000 / (110,000 – 40,000) = 1000 pens
Overview of RSI and Ebitda
So you have basic knowledge about how to calculate break-even point. Next, let’s come to some other equally important knowledge.
Formula to calculate RSI
The formula to calculate RSI is RSI = 100 – 100/(1 + RS), in which RS is the relative strength ratio, calculated as the average of the total number of up periods divided by the average of the total number of down periods in a period. fixed time (RS = AG/AL). The calculation time is the latest 14 days.
Welles Wilder, when developing this indicator, assumed that the buying threshold occurs after a long-term rising market and the selling threshold occurs after a long-term falling market. When RSI > 70, the market is considered overbought, and when RSI < 30, the market is considered oversold. The price range from 30 to 70 is considered a neutral zone, while the 50 level indicates no particular trend in price.
The RSI measures the strength of a security over its history without comparing it to the prices of other securities.
How to calculate Ebitda
There are two ways to calculate EBITDA that investors and managers can use:
- EBITDA = Profit after tax + Interest + Tax + Depreciation
- EBITDA = EBIT + Depreciation
The calculation of EBITDA is similar to EBIT but adds depreciation expenses. Depreciation is usually taken from two main sources: from the balance sheet with accumulated depreciation during the year and from the cash flow table with asset depreciation.
Examples of how to calculate break-even point
To better understand how to calculate break-even point, we will give an illustrative example. Some examples below will help you understand more easily.
Calculate break-even point when sales increase/decrease
Company A produces and sells electronic equipment. Fixed costs are 4,000 USD, variable costs are 2,000 USD/1,000 products. The selling price is 4 USD/product.
- Breakeven point by output: 4 000 * [4 000 – (2 0000/100)] = 800 products
- Return on investment: 2,000 x 100,000 = 200,000,000 USD
If sales volume drops to 1,600 products, actual revenue will be 160,000,000 USD. This will result in a loss of USD 40,000,000. In this case, the business needs to cut fixed costs to achieve break-even point.
If sales volume exceeds the break-even point, say 2,500 products, actual revenue will be 250,000,000 USD, resulting in a profit of 50,000,000 USD.
Calculate break-even points across multiple products
A company produces and sells two products A and B. Fixed costs are known to be 100 million USD. The variable cost of product A is 50,000 USD/product, the selling price is 100,000 USD/product. The variable cost of product B is 60,000 USD/product, the selling price is 120,000 USD/product. The sales percentages of products A and B are 30% and 70%, respectively.
The net profit of each product is calculated by subtracting variable costs from the selling price:
- Net profit of product A: 100,000 – 50,000 = 50,000 USD
- Net profit of product B: 120,000 – 60,000 = 60,000 USD
The weighted net profit for each product is:
- Weight of net profit of product A: 50,000 x 30% = 15,000
- Weight of net profit of product B: 60,000 x 70% = 42,000
The break-even point of both products by output will be:
BEP = 100,000,000 / (15,000 + 42,000) = 1755 (products)
Thus, the company needs to sell a total of about 1,755 products A and B to reach the break-even point. The specific quantity of each product will depend on the expected sales rate (30% product A and 70% product B).
Example of RSI indicator
Based on the RSI calculation formula, we have an example. Illustration of the RSI line of BVH stock (Bao Viet Group) in the last 1 month as shown below:
- The purple line represents stock price movements.
- The yellow line represents the RSI.
Observe that on April 26, 2022, the RSI line dropped below the threshold of 30 (28.61). This is also the time when stock prices begin to reverse upward after a period of decline.
See more: Prestige Broker XTB: Elevate position of invest player
Things to note in calculate break-even point
Some things to note when analyzing calculate break-even point in production and business that administrators need to remember:
- Collect detailed information about fixed costs, variable costs, and product/service selling prices to ensure analysis accuracy.
- The break-even point can vary according to factors such as selling price, fixed costs, and variable costs. Businesses need to update regularly to make appropriate adjustments.
- BEP is just one of many metrics to consider when creating a business plan. To make reasonable business decisions, it is necessary to consider other factors such as profit goals and market share.
Conclude
Above is a summary of information about calculate break-even point that Forex Trading wants to share with you. Hopefully, businesses can apply and make effective production and business decisions.
FAQs
How to calculate break-even point?
Usually, to calculate the break-even point in business, fixed costs are divided by the gross profit margin. This generates some of the money the company needs to break even. For example, in the case of stocks, if a trader buys a stock for $200 and after nine months the stock price falls from $250 to the same level of $200, then the stock has reached the breakpoint. capital.
How do you calculate break-even point in trading?
In this example, calculate the breakeven point for the call option at $110 ($10 premium plus $100 strike price). For a put option, the breakeven point is $90 ($100 strike price minus $10 premium).
Break-even point theory
The break-even point is the point when total revenue equals total costs, applied in accounting and investment. In options trading, it occurs when the market price reaches a zero-loss level for the buyer.
