Essay on Business: Economics and Break-even Analysis

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Evaluate the importance of cash flow and break even for the effective management of business finance. D1

Why is break-even useful for businesses?

Break-even analysis is very useful. It helps business people when they are making decisions related to new ventures – the `what if ‘situation you read about earlier. At the stroke of a pen, different possibility can be tested out on paper – without investing thousands of pounds to make mistakes the hard way

How can businesses use break-even to benefit them?

Its helps business people when they are making decisions related to new ventures.

What are the limitations when using break-even?

Break-even analyse has its limitations. The main one is that is relies on people making accurate predictions about future events. They may not be very good at this. One tendency is to be too optimistic and think. ` It’s a super product. I`m bound to sell thousands!’ There Are also problems if people are too pessimistic?

Why should businesses take care when using break-even graphs?

Break-even is often shown using a graph, because this can be used to illustrate and analyse all the main aspects of break-even. It can also be calculated using a formula.

Why is it useful for cash flow forecasts to be produced?

Every business should have a cash flow forecast so that it can project the amount of money coming into the business (inflow) and the amount of money leaving the business (outflow). Your cash flow will help

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