Break even point and estimation of a company’s earning power
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In economic literature, the authors generally interpret a firm’s earning power as its capacity for generat-ing profit. This paper is an attempt to present earning power in a new light. The first part of the paper presents a new methodological approach to the break even point concept. It offers a solution to an essen-tial problem of interpreting such concepts as „conversion break even point”, „contractual product” and „contractual unit”. The purpose of this study is to measure, analyse and estimate a firm’s earning power using the method of pattern system of economic ratios. In the second part of the paper the earning power ratio is decomposed, which leads to pyramid analysis. This work offers solutions different from those presented in the literature, and some proposals which we can find here are original contributions of the author.
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