What does 'break-even' refer to?

'Break-even' refers to the amount of revenue needed to cover expenses. This concept is crucial in understanding a company's financial health because it marks the point at which total revenues equal total costs, resulting in no net profit or loss. Knowing the break-even point helps businesses determine how much product they need to sell in order to cover their fixed and variable costs before beginning to generate profit.

This understanding allows companies to set sales targets, price their products appropriately, and make informed financial planning decisions. The break-even point is often calculated in units sold or sales dollars, which provides a clear view of the necessary sales volume required to sustain operations without incurring a loss.