8/6/2019 -BEP-

1/18

BEP

Break Even Point

&

Its Characteristics !

8/6/2019 -BEP-

2/18

Break-even analysis

break-even analysis provides a simple means

of measuring profits and losses at different

levels of output.

It helps to provide a dynamic view of the

relationships between sales , cost & profit .

8/6/2019 -BEP-

3/18

8/6/2019 -BEP-

4/18

8/6/2019 -BEP-

5/18

In UNITS

It can be calculated for a single product firm

in terms of units of product. The Break-even

Point, in terms of units will be reached when

units sold and create sufficient revenue , tocover their total cost = fixed + variable cost.

BEP(units)=T

otal Fixed Cost / selling price variable cost per unit

8/6/2019 -BEP-

6/18

In RUPEES

Its simply multiplying above formula

(In Units) by Selling Price.

BEP(Rs.) = TFC

1-(VC per unit / SP)

8/6/2019 -BEP-

7/18

Discounted Cash flow

Break-even Analysis

In finance, discounted cash flow (DCF)

analysis is a method of valuing a project,

company, orasset using the concepts of

the time value of money. All future cash

flows are estimated and discounted to give

theirpresent values (PVs) the sum of all

future cash flows, both incoming and

outgoing, is the net present value (NPV),

which is taken as the value or price of the

cash flows in question.

8/6/2019 -BEP-

8/18

Using DCF analysis to compute the NPV

takes as input cash flows and a discount rate

and gives as output a price; the opposite

process taking cash flows and a price andinferring a discount rate, is called the yield.

The most widely used method

ofdiscounting is exponential discounting,which values future cash flows as "how much

money would have to be invested currently,

at a given rate of return, to yield the cash flow

in future.

8/6/2019 -BEP-

9/18

Mathematics

Discrete cash flows

The discounted cash flow formula is derived

from the future value formula for calculating

the time value of money and compounding

returns.

8/6/2019 -BEP-

10/18

Where

DPV is the discounted present value of the

future cash flow (FV), orFVadjusted for the

delay in receipt; FV is the nominal value of a cash flow

amount in a future period;

i is the interest rate, which reflects the cost

of tying up capital and may also allow for the

risk that the payment may not be received in

full;

8/6/2019 -BEP-

11/18

Thus the discounted present value (for one

cash flow in one future period) is expressed

as:

dis the discount rate, which is i/(1+i), i.e. the

interest rate expressed as a deduction at the

beginning of the year instead of an addition at

the end of the year;

n is the time in years before the future cash

flow occurs.

8/6/2019 -BEP-

12/18

Short Comings

Discounted cash flow analysis is widely used

in investment finance, real estate

development, and corporate financial

management. Discounted cash flow models are powerful,

but they do have shortcomings. DCF is

merely a mechanical valuation tool, which

makes it subject to the axiom "garbage in,

garbage out". Small changes in inputs can

result in large changes in the value of a

company.

8/6/2019 -BEP-

13/18

Use

Where do we need BEP ?

How much lower can be the sales volume

become before the project becomes

unprofitable .

A technique for which identifying the point

where the total revenue is just sufficient tocover the total cost.

8/6/2019 -BEP-

14/18

The Break-Even Chart

In its simplest form, the break-even chart is agraphical representation of costs at various

levels of activity shown on the same chart asthe variation of income (or sales, revenue)with the same variation in activity. The pointat which neither profit nor loss is made isknown as the "break-even point

8/6/2019 -BEP-

15/18

8/6/2019 -BEP-

16/18

8/6/2019 -BEP-

17/18

The break-even point in any business is thatpoint at which the volume of sales orrevenues exactly equals total expenses -- the

point at which there is neither a profit nor loss-- under varying levels of activity. The break-even point tells the manager what level ofoutput or activity is required before the firmcan make a profit; reflects the relationship

between costs, volume and profits.

8/6/2019 -BEP-

18/18

THANK YOU !!!

UTKARSH GUPTA

SIPAKKUMAR MOHANTA

YASH GUPTA

SIDDHARTH GUPTA

- Mayank Parashar