9/16/2023 0 Comments Break even point formula example![]() If you’re looking for this kind of information or support, you should seek advice from a qualified investment advisor. These articles are provided for information only, these are not intended to be personal recommendations on financial instruments, products or financial strategies. Fineco is not responsible for an article's content and its accuracy nor for the information contained in the online articles linked. Costs are a factor you do need to take into account when you’re investing as they can reduce earnings quite considerably depending on the intermediary and the type of financial transaction carried out.įineco Newsroom is a compilation of articles written by our editorial partners. It’s a simple operation that is very useful for investors and traders as it allows them to keep an eye on costs and understand when an investment actually becomes profitable. The BEP can be calculated for any type of investment. On the other hand, if Microsoft's share price exceeds £285 and reaches £300, you can exercise the option and make a profit in fact, you can buy Microsoft shares at £280, pay a £5 premium and sell them at £300 with a profit of £15 per share. ![]() ![]() The break-even point in this case is £285, which is the strike price plus the premium, so if the market price doesn’t exceed the BEP, it isn’t going to be profitable to exercise the option. That means we can buy Microsoft shares at £280 per share before the option expires and exercise this right at any time. Let’s imagine that we bought a call option on Microsoft shares with a strike price of £280 and paid a premium of £5. Let's look at an example with options to get a better understanding of how BEP works in trading. In the finance sector you can also calculate the break-even point of an investment, so you are aware of the price level which has to be reached before making a profit.įor example, in options trading, the BEP equals the price that the underlying asset must be at so that exercising the option doesm’t result in a loss. An investment’s BEP is the value that allows costs to be reset to zero and above which a profit can be generated. In finance, the break-even point is used to understand when the price of a security allows you to pay off transaction fees, such as broker's commissions, taxes and management fees. ![]() In addition to risk control and business planning, the BEP can also be used to monitor production activities so a business is in a position to intervene immediately if the break-even point isn’t reached.Īnother use of the BEP is in the real estate sector, where it shows the return a property must generate to cover the amount it cost. In other words, revenues have allowed all expenses to be redeemed. When the break-even point is reached, it means that profits are equal to losses. BEP is widely used in business, for example to understand how many products a company has to sell before its costs are covered. So basically, it’s the point of balance between expenses and revenues that indicates when the costs break even. The break-even point is a parameter used to identify the amount needed to cover costs. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |