break-even point

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Break-even point

Refers to the price at which a transaction produces neither a gain nor a loss. In the context of options, the term has the additional definitions:
1. Long calls and short uncovered calls: strike price plus premium.
2. Long puts and short uncovered puts: strike price minus premium.
3. Short covered call: purchase price of underlying stock minus premium.
4. Short put covered by short stock: short sale price of underlying stock plus premium.

Break-Even Point

1. The sales or revenues necessary to cover costs and prevent a firm from operating at a loss. The breakeven may be relatively stable or it may fluctuate, depending on the company or industry. Companies with high breakevens tend to have large fluctuations in earnings from year to year.

2. The price of a security that, if one sells at it, will cause the investor to neither make a profit nor lose money on the sale.

3. In options, the price of the underlying asset that will ensure that the option holder will neither make a profit nor lose money on exercising the option. In calls, the break-even point is the strike price added to the premium, while in puts, it is the strike price minus the premium.

break-even point

In any project,the point at which revenue will be sufficient to pay all required expenses and debt service. Most industries have generally recognized rules of thumb for the appropriate break-even point. For apartments, it might be 80 percent occupancy, for self-storage it might be 55 percent occupancy,and for business center space it might be 75 percent occupancy.Most construction lenders require that a project at least reach the break-even point before construction lending can be converted to fixed-rate and lower-rate permanent financing.If preparing a pro forma for a project and your break-even point is dramatically different from the rule of thumb for your industry,it may be time to check your assumptions or your math.

References in periodicals archive ?
In economics, break-even point is the point at which project revenues equal project costs (Blaug 2007).
Once the production and sales increase beyond the break-even point, economic profits are generated (Fig.
Industrial buildings and break-even point analysis method
The break-even at cost point is the most commonly used break-even point, but break-even points at required return and required return after taxes are now receiving more consideration in profit evaluations.
The data is summarized in Table 1 and the calculations for the various break-even points are presented.
2, the relationship between profits, taxes and costs and the break-even points can be observed.
For example, it may not benefit certain taxpayers to accelerate itemized deductions into the current year if they are close to their break-even point.
There is a slight difference in the break-even point, due to rounding.
Since their adjustments exceed the AMT break-even point, they would be subject to the AMT.
Thus, the package (aggregate) break-even point is $555,100/$61 = 9,100 packages.
In order to compute the break-even point and perform various CVR analyses, note the following important concepts.
The break-even point represents the level of revenue that equals the total of the variable and fixed costs for a given volume of output service at a particular capacity use rate.