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Break Even Analysis

This document presents a break-even analysis of a company based on accounting profit and net present value (NPV). It includes key assumptions, cash flow forecasts over 7 years, and sensitivity analyses. It shows that the break-even point in year 1 is 1,875 units based on accounting profit being zero. The NPV is positive at $594, indicating the project is profitable. A sensitivity table maps the NPV contour where it equals zero for different year 1 unit sales and year 2 sales growth rates.

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hmarcal
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© Attribution Non-Commercial (BY-NC)
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Download as XLS, PDF, TXT or read online on Scribd
234 views

Break Even Analysis

This document presents a break-even analysis of a company based on accounting profit and net present value (NPV). It includes key assumptions, cash flow forecasts over 7 years, and sensitivity analyses. It shows that the break-even point in year 1 is 1,875 units based on accounting profit being zero. The NPV is positive at $594, indicating the project is profitable. A sensitivity table maps the NPV contour where it equals zero for different year 1 unit sales and year 2 sales growth rates.

Uploaded by

hmarcal
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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BREAK-EVEN ANALYSIS Based On Accounting Profit

Inputs
Fixed Costs

$150,000 Break-Even Point Based On Acct. Profit = 0


$30,000

30

$120,000
$90,000

Sales Revenue / Unit

$6.00

Total Costs

$60,000
Sales
Revenue
Accounting
Profit

$30,000
Variable Costs / Unit

$4.00

$0
($30,000)

($60,000)
0

Calculate the Break-even Point using the Formula


Break-even Point (Unit Sales)

15,000

Back solve for the Break-even Point using the Income Statement
Unit Sales
Sales Revenue
Variable Costs
Gross Margin
Fixed Costs
Accounting Profit

15,000
$90,000
$60,000
$30,000
$30,000
$0

5,000

10,000
Unit Sales

15,000

20,000

Data Table: Sensitivity of Costs, Revenues, and Acct. Profit to Unit Sales
Input Values for Unit Sales
Output Formulas:
$0
5,000
10,000
15,000
20,000
25,000
Total Costs
$90,000
$50,000
$70,000
$90,000
$110,000 $130,000
Sales Revenue
$90,000
$30,000
$60,000
$90,000
$120,000 $150,000
Accounting Profit
$0 ($20,000) ($10,000)
$0
$10,000 $20,000

Total Costs

Sales
Revenue
Accounting
Profit

BREAK-EVEN ANALYSIS

Based On NPV

(in thousands of $)
Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Key Assumptions
Sales Growth Rate
Change in Sales Growth Rate
Inflation Rate
Real Cost of Capital
Tax Rate

55.0%
2.0%
11.0%
35.0%

2.5%
11.2%
35.0%

40.0%
-15.0%
3.0%
11.4%
35.0%

25.0%
-15.0%
3.5%
11.6%
35.0%

5.0%
-20.0%
4.0%
11.8%
35.0%

-20.0%
-25.0%
4.0%
12.0%
35.0%

-50.0%
-30.0%
4.0%
12.2%
35.0%

13.2%
13.2%

14.0%
29.0%

14.7%
48.1%

15.5%
71.0%

16.3%
98.9%

16.5%
131.6%

16.7%
170.3%

2907
$9.94
$7.59
$5,412

4070
$10.24
$7.81
$5,574

5087
$10.60
$8.09
$5,769

5342
$11.02
$8.41
$6,000

4273
$11.46
$8.75
$6,240

2137
$11.92
$9.10
$6,490

Discounting
Discount Rate = Cost of Capital
Cumulative Discount Factor

0.0%

Price or Cost / Unit


Unit Sales
Sales Revenue / Unit
Variable Cost / Unit
Cash Fixed Costs

1,875
$9.70
$7.40
$5,280

Cash Flow Forecasts


Sales Revenue
Variable Costs
Gross Margin
Cash Fixed Costs
Depreciation
Total Fixed Costs
Operating Profit
Taxes
Net Profit
Add Back Depreciation
Operating Cash Flow
Investment in Plant & Equip
Cash Flows

($11,350)
($11,350)

$18,192
$13,879
$4,314

$28,903
$22,050
$6,853

$41,678
$31,796
$9,882

$53,921
$41,135
$12,785

$58,881
$44,920
$13,962

$48,989
$37,373
$11,616

$25,474
$19,434
$6,040

$5,280
$1,421
$6,701

$5,412
$1,421
$6,833

$5,574
$1,421
$6,996

$5,769
$1,421
$7,191

$6,000
$1,421
$7,422

$6,240
$1,421
$7,662

$6,490
$1,421
$7,911

($2,388)
($836)
($1,552)

$20
$7
$13

$2,887
$1,010
$1,876

$5,594
$1,958
$3,636

$6,540
$2,289
$4,251

$3,954
$1,384
$2,570

($1,871)
($655)
($1,216)

$1,421
($131)

$1,421
$1,434

$1,421
$3,298

$1,421
$5,058

$1,421
$5,672

$1,421
$3,992

$1,421
$205

$3,992

$1,400
$1,605

($131)

$1,434

$3,298

$5,058

$5,672

Present Value of Each Cash Flow


Net Present Value

($11,350)
($0)

($115)

$1,111

$2,227

$2,957

Data Table: Sensitivity of Net Present Value to Year 1 Unit Sales


and Year 2 Sales Growth Rate
Output Formula:

Input Values for Year 1 Unit Sales

$2,852

$1,723

$594

Net Present Value

($0)
45.0%
50.0%
55.0%
60.0%
65.0%

Input Values for Year 2


Sales Growth Rate

1,700
($6,767)
($4,673)
($2,283)
$442
$3,548

1,900
2,100
2,300
($4,692) ($2,618)
($543)
($2,352)
($31)
$2,290
$319
$2,921
$5,523
$3,365
$6,288
$9,210
$6,836 $10,124 $13,412

NPV Break-Even Contour (Based On NPV = 0) Across


Year 1 Unit Sales And Year 2 Sales Growth Rate

$15,000

NPV Break-Even
Contour

Net Present Value

$10,000

$5,000
$0
($5,000)
($10,000)
2,300
Year 1 Unit Sales

60.0%

65.0%

55.0%

2,100
1,900

50.0%
1,700
45.0%

Year 2 Sales Growth Rate

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