Breakeven means a situation of no gain, no loss. Anything below this level is a loss while the company is at a profit above this level. The financial breakeven point is the amount of EBIT (Earnings before Interest & Tax) where the EPS (Earnings per Share) is equal to zero. In simple words, it is the level of a company’s earnings before it makes payment of interest and tax where it is unable to generate any earnings for its equity shareholders. The financial breakeven calculator will calculate the amount of EBIT where the net income available for equity shareholders is nil.
The formula for calculating the financial breakeven point is as follows:
Financial Breakeven Point = {Preference Dividend / (1 – Tax Rate)} + Interest
Financial Breakeven Calculator
How to Calculate using Calculator?
Insert the following particulars into the calculator for quickly arriving at the financial breakeven point, that is, the EBIT level where EPS is equal to zero.
Preference Dividend – Enter the total amount of preference dividend due on outstanding preference capital. The rate of the dividend of preference capital is fixed. Therefore, to calculate preference dividend, multiply the rate of dividend by the total outstanding preference capital amount.
Tax Rate – It is the rate by which a portion of the earnings of the company is deducted and paid to the government.
Interest – The amount which the company pays to its debtholder is the interest. The company borrows money from the public as well as financial institutions to finance its daily operations and smooth functioning. Hence, it has to pay the interest to the lenders for providing funds. We calculate this interest on the outstanding amount of borrowings of the company.
