What does a break-even analysis determine?

A break-even analysis is a crucial financial assessment that determines the point at which total revenues equal total costs. This means that at the break-even point, a business is not making a profit but also not incurring any losses; it has "broken even." This analysis helps business owners identify how much they need to sell to cover their fixed and variable costs over a specific period. It serves as a valuable tool in decision-making, allowing businesses to understand financial viability, set sales targets, and evaluate pricing strategies effectively. By understanding where they break even, business owners can make informed decisions regarding investments, pricing, and cost management to enhance profitability.