Term · Profitability & Growth
Break-even point
In briefThe break-even point marks the revenue or sales level at which neither profit nor loss arises. For loss-making small caps it shows how realistic the path to profitability is.
Definition
The revenue or sales level at which a company makes neither a loss nor a profit.
How it is calculated
Formula. Break-even revenue = fixed costs ÷ contribution margin ratio.
Why it matters for small caps
For loss-making small caps, the break-even point shows how realistic the path to profitability is.
Common misreadings
- It is misunderstood as a pinpoint threshold; prices, mix, fixed costs and working capital change dynamically.
In the process
Frequently asked
What is the break-even point?
It is the threshold at which revenues and costs exactly balance. Below it a company makes a loss, above it a profit.
How do you calculate the break-even?
You divide fixed costs by the contribution margin ratio. This yields the revenue at which fixed costs are covered.
Why is the break-even not a fixed point?
Prices, product mix, fixed costs and working capital change continuously. The threshold therefore shifts dynamically.
Related terms
Sources
Primary
IFRS Foundation – IFRS Accounting Standards Navigator
https://www.ifrs.org/issued-standards/list-of-standards/
https://www.ifrs.org/issued-standards/list-of-standards/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.