Your project's break-even point: the one figure the investor remembers
In short: The break-even point is the revenue level at which a project stops losing money. The Annex V template of Decree No. 26-154 requires it in the profitability analysis. It cannot be read directly from the income statement, which the Algerian financial accounting system (SCF) presents by nature of expense: fixed and variable costs must first be separated. This article walks through the calculation on a worked example, shows why the first financial year is the worrying one, distinguishes the break-even, cash break-even and debt-service break-even thresholds, and ends with the two checks any experienced reader makes: installed capacity and sensitivity to price.
Keywords in this article
1. What is the break-even point, and why does the investor look at it first?
The break-even point is the revenue level at which the project stops losing money. Below it, each sale reduces the loss; above it, each sale creates profit. Nothing more, but that is a lot.
The law requires it. For an economic land application, Part VI of the Annex V template of Executive Decree No. 26-154 of 14 April 2026 places the break-even point in the "profitability analysis", alongside IRR, NPV and the margin rate (Official Journal No. 31, p. 25).
This figure matters more than the others because it can be compared with something concrete. NPV and IRR depend on a discount rate the reader can dispute. The break-even point sits next to the plant's capacity and the target market. In our experience, it is the first question an investor or an analyst used to these files asks. At what percentage of its capacity must this project run to avoid a loss? The other indicators are covered in NPV, IRR and payback period.
2. Why doesn't the income statement give the break-even point directly?
Because it is not built for that. The Algerian financial accounting system (SCF) presents expenses by nature: the order of 26 July 2008 calls for an "analysis of expenses by nature, making it possible to determine the following main management aggregates: gross margin, value added, gross operating surplus" (point 230-2). An income statement by function is only an option, presented in the notes (point 230-3).
The break-even point needs a different reading: separating what varies with volume from what does not. Every line of the forecast must therefore be reclassified. The table below gives the default classification we apply. It is open to discussion line by line, depending on the project.
| Income statement line | Default classification | Why |
|---|---|---|
| Purchases consumed (materials, packaging) | Variable | Follow the volume produced |
| Energy, transport, production subcontracting | Mixed | A fixed part (standing charge, minimum contract), a part tied to volume |
| Rent, insurance, fees, scheduled maintenance | Fixed | Due whatever the volume |
| Staff costs (wages and employer contributions) | Fixed, in most cases | Variable only if pay depends on volume |
| Taxes and duties other than corporate income tax (IBS) | Fixed | No link with revenue since the professional activity tax (TAP) was abolished |
| Depreciation and amortisation | Fixed | Non-cash expense, to be removed for the cash break-even |
| Financial expenses | Fixed | Depend on the loan, not on volume |
Method-based classification drawn from our practice; it has no regulatory force.
Mixed costs are the ones that distort the calculation. Classifying all energy as fixed artificially lowers an industrial project's break-even point; classifying all of it as variable raises it. The only honest way to treat it is to read the contract or the bill, which separate the standing charge from consumption.
3. How do you calculate a project's break-even point?
In three steps, starting from the reclassified forecast.
- Contribution margin = revenue − variable costs. The contribution margin ratio is that margin divided by revenue.
- Break-even revenue = fixed costs ÷ contribution margin ratio.
- Break-even point in days = break-even revenue ÷ revenue × 360. This is the day of the financial year on which the threshold is reached, on a 360-day commercial year and assuming steady activity.
Let us apply it to year 3 of the example published in our article on the forecast income statement. The figures are purely illustrative. We assume that 40% of external services vary with volume.
| Item (millions of dinars) | Year 3 |
|---|---|
| Revenue excluding VAT | 110.0 |
| Variable costs (purchases 44.0 + 40% of external services 4.0) | 48.0 |
| Contribution margin | 62.0 |
| Contribution margin ratio | 56.4% |
| Fixed costs (services 6.0 + staff 19.0 + taxes 1.0 + depreciation 7.0 + interest 2.4) | 35.4 |
| Break-even revenue (35.4 ÷ 56.4%) | 62.8 |
| Margin of safety (110.0 − 62.8) | 47.2, i.e. 42.9% of revenue |
| Break-even point | Day 206, end of July |
Check: 62.0 − 35.4 = 26.6, the pre-tax profit for year 3 in the original example.
The same calculation can be done in units, which speaks more to a manufacturer: fixed costs ÷ (unit selling price − unit variable cost). The result is the number of units to sell in the year to avoid a loss. If the project sells several products, the margin ratio is calculated on the planned mix. Changing the mix changes the threshold.
Two limits to keep in mind. The break-even point in days assumes sales spread evenly; for a seasonal business (food processing, construction, tourism), it is calculated month by month on the cash-flow plan. And profit reacts more than proportionally to volume: in the example, the contribution margin is 2.3 times pre-tax profit (62.0 ÷ 26.6). A 10% drop in volume therefore cuts that profit by about 23%. That is the leverage effect of fixed costs.
Does your break-even point hold up?
Send us your forecast and the capacity of your facility. We reclassify the costs, calculate the three thresholds and tell you at what utilisation rate your project starts making money. Scoping is free and leads to a written quote.
Get my break-even calculated4. Why is the first year's break-even point the worrying one?
Because that is where the margin of safety is thinnest. Take year 1 of the same example: 60.0 million in revenue, 27.2 in variable costs, 30.0 in fixed costs.
Year 1: break-even revenue of 54.9 million for revenue of 60.0 million. The margin of safety falls to 8.5%. The break-even point arrives on day 329, at the end of November. If sales start one month late, the year ends in a loss.
It is the same finding as the debt-service coverage, barely above 1 in the first year of the original example. The two figures say the same thing in two forms: the first year cannot absorb a surprise. That is what a repayment grace period is for.
In our experience, an analyst who sees a break-even point at the end of the year does not reject the project for that reason alone. He asks what happens if the start slips by three months. A file that already has the answer, in figures, earns his confidence.
5. Break-even, cash or debt-service threshold: which one should you present?
The break-even point does not tell the whole cash story. Two adjustments give two other figures, and each one answers a different question.
| Threshold | Fixed costs used | Year 3 | Question it answers |
|---|---|---|---|
| Break-even | All of them: 35.4 | 62.8 | From when is the project profitable? |
| Cash break-even | Excluding depreciation: 28.4 | 50.4 | From when does the business cover its cash outflows? |
| Debt-service break-even | Cash costs + principal repaid in the year: 28.4 + 5.6 = 34.0 | 60.3 | From when does the business also repay the loan? |
Principal repaid = annual instalment of 8.0 − interest of 2.4. Thresholds calculated at the contribution margin ratio of 56.4%.
The debt-service break-even is the one the bank cares about, even if it does not call it that: loan principal is not an expense and does not appear in the income statement. Yet it leaves the bank account. This third threshold has no regulatory definition; it is a method tool we add to loan files.
6. Does the break-even point hold up against installed capacity?
This is the check any experienced reader makes. The break-even point expressed in volume is compared with the installed capacity stated in the technical part of the study.
In the example, if 110 million corresponds to year 3 activity, the threshold of 62.8 million represents 57% of that volume. If the technical study states that the plant runs at 70% of capacity in that same year, the break-even point sits at around 40% of capacity. That is the figure the investor remembers. A break-even point that requires running above the utilisation rate stated in the study is an inconsistency the reader spots without calculating; it is one of the pitfalls of the techno-economic study.
The sensitivity test that is almost always missing
Break-even revenue does not move when volume changes. Only the margin of safety does. It does move as soon as the price or the variable cost changes. In the example, a 10% cut in selling price, with volume and costs unchanged, takes the margin ratio from 56.4% to 51.5%. The threshold rises to 68.7 million for revenue of 99.0: you now have to sell 69% of the volume instead of 57% to avoid a loss.
In our experience, a forecast that presents this test on price, the cost of the main raw material and the start date answers in advance the three objections we hear most often. It does not replace the central scenario; it shows that the central scenario has been stress-tested.
This article presents a calculation method and an example with illustrative figures; it is not investment advice, a recommendation to launch a project, or a guarantee of results or financing. Any decision must rest on the project's actual data and on the financing terms actually obtained.
FAQ — Frequently asked questions
Break-even revenue is an amount of revenue: the level from which the project no longer loses money. The break-even point is the moment in the financial year when that amount is reached, expressed in days or as a date. In practice, the two terms are often used interchangeably.
For an economic land application, yes: Part VI of the Annex V template of Decree No. 26-154 places the break-even point in the profitability analysis, with IRR, NPV and the margin rate. Banks do not mention it in their document lists, but it can be derived from the forecast they ask for.
As fixed costs in most cases, employer contributions included: they are due whatever the volume produced. They only become variable if pay depends directly on output, for example with piece-rate work.
Yes for the break-even point, which measures profit. No for the cash break-even, which measures coverage of cash outflows, since depreciation does not leave the bank account. Loan principal repayments, on the other hand, are not an expense but do leave the bank account: they are added for the debt-service break-even.
Not in the first year, if the file explains it and cash flow can carry it. It signals a very thin margin of safety: a late start puts the year into a loss. That is what the analyst will test, and what a repayment grace period can cover.
Part VI of the template cites it next to the break-even point, without defining it. We therefore present two ratios, naming each: the gross margin ratio (gross margin ÷ revenue) and the contribution margin ratio, which is used to calculate the break-even point. What matters is to say which one is presented and to use it the same way throughout the study.
Sources and references
- Executive Decree No. 26-154 of 14 April 2026 amending and supplementing Executive Decree No. 23-487 of 28 December 2023: Annex V, template of the techno-economic study, Part VI "Economic and financial forecasts" (forecast income statement, cash-flow table and balance sheet over 3 to 5 years; profitability analysis: IRR, NPV, break-even point, margin rate), p. 25 — Official Journal of the Algerian Republic No. 31 of 28 April 2026 · Verified on 15/10/2026
- Order of 26 July 2008 setting the valuation and recognition rules, the content and presentation of financial statements and the chart and operating rules of accounts: points 230-1 (the income statement does not take account of collection and payment dates), 230-2 (analysis of expenses by nature: gross margin, value added, gross operating surplus), 230-3 (income statement by function possible in the notes) — Official Journal of the Algerian Republic No. 19 of 25 March 2009 · Verified on 17/10/2026
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