Cash break-even analysis
A) is helpful in analyzing the short-term outlook of the firm, particularly when it is in trouble financially.
B) is important when analyzing long-term profitability.
C) includes depreciation expense as a fixed cost when calculating the degree of financial leverage.
D) None of the options are true.

Question

Quizplus · Accepted Answer

Cash break-even analysis is used to determine the level of sales a company must achieve in order to cover all of its variable and fixed costs and break even. It is particularly useful in analyzing the short-term outlook of a firm when it is in trouble financially, as it helps to identify the minimum level of sales required to cover expenses and avoid negative cash flow. Option B is incorrect, as cash break-even analysis is typically used for short-term analysis, not long-term profitability. Option C is incorrect, as depreciation is a non-cash expense that is not included in cash break-even analysis.

Cash Break-Even Analysis