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Breakeven Sample

The breakeven point (BEP) refers to the price or production level where total revenues are equal to total costs. Specifically: - For investments, the BEP is when the market price equals the original cost. - For companies, the BEP is calculated by dividing fixed costs by revenue per unit minus variable costs per unit. It's the production level where total revenue equals total expenses. - Traders and homeowners also use BEP to determine the price needed for their trade/property sale to offset all associated costs.

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62 views

Breakeven Sample

The breakeven point (BEP) refers to the price or production level where total revenues are equal to total costs. Specifically: - For investments, the BEP is when the market price equals the original cost. - For companies, the BEP is calculated by dividing fixed costs by revenue per unit minus variable costs per unit. It's the production level where total revenue equals total expenses. - Traders and homeowners also use BEP to determine the price needed for their trade/property sale to offset all associated costs.

Uploaded by

Ozwayle Chin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What Is the Breakeven Point (BEP)?

The breakeven point (break-even price) for a trade or investment is determined by comparing the
market price of an asset to the original cost; the breakeven point is reached when the two prices are
equal.

In corporate accounting, the breakeven point formula is determined by dividing the total fixed costs
associated with production by the revenue per individual unit minus the variable costs per unit. In
this case, fixed costs refer to those which do not change depending upon the number of units sold.
Put differently, the breakeven point is the production level at which total revenues for a product
equal total expenses.
reakeven points can be applied to a wide variety of contexts. For instance, the breakeven point in a
property would be how much money the homeowner would need to generate from a sale to exactly
offset the net purchase price, inclusive of closing costs, taxes, fees, insurance, and interest paid on
the mortgage—as well as costs related to maintenance and home improvements. At that price, the
homeowner would exactly break even, neither making nor losing any money.

Traders also apply BEPs to trades, figuring out what price a security must reach to exactly cover all
costs associated with a trade including taxes, commissions, management fees, and so on. A
company's breakeven is likewise calculated by taking fixed costs and dividing that figure by the gross
profit margin percentage.

Stock Market Breakeven Points

Assume an investor buys Microsoft stock at $110. That is now their breakeven point on the trade. If
the price moves above $110, the investor is making money. If the stock drops below $110, they are
losing money.

If the price stays right at $110, they are at the BEP, because they are not making or losing anything.

Options Trade Breakeven Points

Call Option Breakeven Point Example

For options trading, the breakeven point is the market price that an underlying asset must reach for
an option buyer to avoid a loss if they exercise the option. For a call buyer, the breakeven point is
reached when the underlying is equal to the strike price plus the premium paid, while the BEP for a
put position is reached when the underlying is equal to the strike price minus the premium paid. The
breakeven point doesn't typically factor in commission costs, although these fees could be included
if desired.

Assume that an investor pays a $5 premium for an Apple stock call option with a $170 strike price.
That means the investor has the right to buy 100 shares of Apple at $170 per share at any time
before the options expire. The breakeven point for the call option is the $170 strike price plus the $5
call premium, or $175. If the stock is trading below this, the benefit of the option has not exceeded
its cost.

If the stock is trading at $190 per share, the call owner buys Apple at $170 and sells the securities at
the $190 market price. The profit is $190 minus the $175 breakeven price, or $15 per share.

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