Financial BEP

Submitted by: Rachit mahobia MBA II

BEP
BEP or Break-even Point refers to the point where the costs or expenses of a firm are equal to the revenues so generated. It is a no profit no loss situation

Financial BEP
It is that level of EBIT (Earning before interest and tax) at which firms EPS (Earnings per share) is equal to zero. In other words it is that situation where the EBIT is such that it could cover only the cost of debt and tax liability of a firm.

Accounting v/s financial BEP

ACCOUNTING BEP FINANCIAL BEP

When the overall revenues of a firm exceeds its all variable and fixed costs then the firm is said to attain its accounting BEP.

Financial BEP is more personal than the accounting BEP. It helps to determine that level of profits which a firm must generate in order to pay off its interest ant tax liability.

For example
sales 1000000 variable cost (500000) contribution 500000 fixed cost (100000) EBIT 400000 interest (50000) EBT 350000 tax @ 40% (140000) EAT 210000

In the abovementioned example, while the Accounting BEP is attained at the sales level of Rs. 2,00,000 only. Financial BEP is attained at a sales level of much more higher level as it includes the

interest and tax amounts also.

Conclusion
To conclude it can be said that financial BEP is nothing but a part of accounting BEP and its significance has increased in the present era due to the concept of shareholder wealth maximisation.