Making Good Decisions—and Moving Those Numbers
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Breakeven Analysis
Breakeven analysis tells you how much (or how much
more) you need to sell in order to pay for the fi xed
investment—in other words, at what point you will break
even on your cash fl ow. With that information in hand,
you can look at market demand and competitors’ mar-
ket shares to determine whether it’s realistic to expect
to sell that much. Breakeven analysis can also help you
think through the impact of changing price and volume
relationships.
Most companies do breakeven analysis on the basis of
revenue and gross profi t margin. Here we will take a sim-
plifi ed approach and do the fi guring on the basis of unit
volume, so you can see the underlying reality. Our break-
even calculation ...