“Business By the Numbers - Part 4” discussed the importance of tracking your business by using numbers from your Balance Sheet and Profit and Loss statement to determine your Sustainable Growth Rate without increasing your debt-to-equity ratio.
Business Break Even Analysis
“Break even is the amount of sales that produces just enough revenue to cover your expenses and overhead without a loss or profit. It is important to know the break even for the business because it will tell you in every period whether you are going to make a profit AND it tells you whether you need to reduce your overhead and by how much.
A very simple, close to accurate, way to approximate break even is to find the amount of sales at the current Gross Profit Margin that equals the current dollar amount of operating expenses.
Business Break Even Analysis Formula
Break Even = Fixed Expenses + Interest / Gross Margin”
Business By the Numbers Part 6 will feature Z-Score.