Once a Business Is Operating Beyond the Break-Even Point, Why

question 70

Essay

Once a business is operating beyond the break-even point, why doesn't each additional dollar of revenue add a dollar to net income?

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales, indicating the potential for higher returns or risks.

Sales Decrease

A reduction in the quantity or value of items sold by a business within a particular period.

Financial Break-Even

Financial break-even is the point at which total revenues exactly cover total costs, leaving the business with neither profit nor loss, focusing on financial stability.

Initial Investment

The amount of money used to start a project, purchase an asset, or invest in a financial instrument, marking the beginning of the investment’s lifecycle.