The break-even analysis
The production level where the total revenues equal’ total expenses are referred to break-even. In other words, where a company generates the same amount of income as the expenses during the accounting period or manufacturing process. The break-even analysis helps in understanding what needs to sell, monthly, or annually to cover your costs of doing business. The break-even analysis table calculates a break-even point where based on the variable costs per unit of sales, fixed costs, and revenue per unit sales. The break-even analysis is used in determining the selling price, which will give the desired profits. It helps in the fixation of sales volume to cover given return on capital employed and also helps in forecasting costs and benefits as a result of the change in size. The advantage of using this analysis is to enable a business organization to measure the losses and profits levels of sales and the production. Breakeven identifies the total amount of purchase that the business needs to earn before the profits. When analyzed carefully, break-even analysis helps the company to identify high fixed costs.
Leverage is referred to as the strategy that companies use to raise the assets, returns, and cash flows, though it can also magnify losses.
There are two types of leverage financial and operating. To increase financial advantage a firm may need to borrow capital through issuing fixed income securities. The ratio of the company debt to the value of its common equity, gearing use borrowed money for, expecting the company to make profits and to be higher than the interest payable. For an example of leverage is to back up a new firm financially. Another example of advantage is to buy fixed assets or borrow capital from another company or individual in loan form that can be used to create profits.
The importance of break-even analysis to help managers to decide whether they need to modify the price of selling and create a pricing strategy. It also allows businesses to make a quick decision on financials. The level of sales and production can measure profits and losses. It also predicts the effects of cost and efficiency changes on profitability. Managers usually use break-even analysis to set the cost so that you can understand the impact in economical price and sales volume.
Almarai is the largest company which operates in a dairy firm and processed food in Saudi Arabia. Almarai means green pasture in Arabic. Almarai firm began in 2009 in the fashion bond as consolidate in the Kingdom and expanded the world. Almarai stated that they would joint venture with PepsiCo to invest in juice processors and dairy in South East Asia, Middle East, and Africa, which Almarai owns 48%. Almarai was founded by the Prince Sultan bin Mohammed Alkabeer. This was cited by Bloomberg. Naïf bin Sultan is an Almarai member of the board and also serves as chairman of the projects and Technical Contracting Company. This is according to the Almarai website. This company may have used break-even analysis to boost capital, which will help them to produce more goods and make more profits. Almarai may use borrowed capital or debt to increase the [potential return of the investment. This works the best when shares of the company raise which