What you’ll learn to do: calculate the break-even point, where profit will be equal to $0, using information from financial statements

You may have heard business owners say, “I didn’t even break even,” and thought to yourself, What are they talking about? In this section you will learn to calculate the point where the amount of income you earn results in neither a profit nor a loss—and “breaks even.”

You have probably already had experience with this in your own life, without realizing it. Think about some money-making activity you were involved with as a kid—say, a lemonade stand or a car wash. If it was a car wash, you had to buy soap and buckets and rags. You needed posters, so you bought markers and poster board. Maybe you had to purchase some new, longer garden hoses or pay the local mall a few dollars to hold your car wash in their lot. Well, how many cars did you have to wash before you recovered all of your costs? You figured that out fast, didn’t you? Well, then you’ve already calculated a break-even point! In this section we will look at some more complex examples, but you are already well on your way!

LEARNING ACTIVITIES

The learning activities for this section include:

• Video: Break-Even Analysis in Three Minutes
• Reading: Finding the Break-Even Point
• Simulation: The Rise of the Business Guru
• Self Check: The Break-Even Point

Take time to review and reflect on each of these activities in order to improve your performance on the assessment for this section.