Question

What is the difference between break-even point and payback period?

Answer 1

Answer:

Break-even point is the volume of sales or services that will result in no net income or net loss on a company's income statement. In other words, the break-even point focuses on the revenues needed to equal exactly all of the expenses on a single income statement prepared under the accrual method of accounting.

Payback period is the number of years needed for a company to receive net cash inflows that aggregate to the amount of an initial cash investment. Hence the payback period focuses on the pertinent cash flows of multiple accounting years instead of the net income of a single accounting period.

Answer 2

A company's payback period is concerned with the number of periods needed to pay back an initial investment with positive net income, while a company's breakeven point is concerned with the specific period in which its revenue will equal total costs and its net income will be zero.

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