Any business organization that is profitable or has the prospect of being profitable should consider making the necessary calculations for that purpose. Being profitable is equal to health of a business, therefore, all the calculations that are made in favor of its profitability, are sacred. One of these calculations is breakeven point, also called break-even point or neutral point.
What is the profitability threshold?
The company that has started a production and has already obtained benefits, will have an amount of necessary information. These data, among other factors, will provide finance, the number called breakeven point. This is based on the number sales minimum that must be made of the product, so that the benefit or profits are equal to zero.
In other words, it is the calculation that is made so that the total investment is identical to the total earnings. Values less than this number will give losses to the company, in contrast, higher values will be equal to profit.
Financial profit
Within the Return Threshold, we must take into account the financial return.
Any company that has positive dividends, in the short or medium term, will win shareholders, as long as it has successful scenarios. Likewise, a company must have a fundamental factor, which is the financial profit. More than a concept, it is a calculation that every shareholder must consider when buying and investing in a company.
In this calculation, the benefits or profitability of the company are related, together with the necessary resources, to achieve that profitability. For its acronym, in English, the ROE or Return on equity, offers shareholders a number to anchor to, when establishing an investment. Seen from another point of view, it is the positive number that is deducted from the investment of the shareholders, in favor of the company net profit.
Accounting profitability
One factor to consider when an investor manages a figure to allocate is the number offered by the accounting profitability. For this, the financial return obtained previously must be considered first. Similarly, it should be understood that this number is fixed at a finite period of time.
In order to get the accounting profitability, the average benefit must be obtained, calculated in the established time. Of course, this benefit must be tax free, together with any prior amortization. This number is divided by the gross value of the asset, that is, the value of the product in the market. It is worth noting that accounting profitability establishes flat numbers that reflect specific situations. An investor, although handling this figure, considers it secondary and even, depending on the situation, often does not take it into account.
How to calculate the Return Threshold?
When calculating the Return Threshold, you must have knowledge of what each of the terms that make up the formula that we show you below are.
These are the factors to consider:
- The first ones we see are the letters (PM). These letters refer to "deadlock", which has been the same as Return Threshold.
- Next, we can observe the letters (CF). It refers to the Total Fixed Costs: These are costs that do not vary independently of the productive activity.
- Next, we find the Unit Sale Price (Pv): It is the individual price of each product or service that is marketed.
- Finally, we have the Unit Variable Costs (Cv): These are costs that can vary depending on the quantity produced.
Situation to take into account regarding the Return Threshold
Do companies that have profits work properly?
If the companies at the end of the month see that income minus expenses is a positive number, then perfect, everyone is happy.
But they don't analyze their entire business divided into processes, and that's where the mistake lies.
The creation of the product, packaging, storage, transport, marketing are some of the characteristics that many companies meet.
That the company earns money is synonymous that everything is going well, but… what if the creation of the product, packaging, storage and transport worked extremely well, and the commercialization was losing because it is being executed in the wrong way?
You can only know with obtaining data in a CRM, if you want to know the functionalities it has, click here. All big companies want to make sure they stay that way. That is why the most competitive use it.
Every day more medium and small companies join the bandwagon of automation. In a few years it will be practically mandatory for those companies that want to survive. More information
