What is the difference between break-even analysis and payback period in terms of cashflow?
First, what is cash flow> Cash flow is defined as an increase or decrease in an amount of cash. And what is cash? Cash is defined as ‘cash held in hand’ and any deposits repayable on demand with banks and any other qualifying financial institution, less overdrafts from a bank and any qualifying institution, repayable on demand. What then is the difference between break- even analysis and payback period on the basis of cash flow? The term break-even analysis as commonly used, does not capture the true meaning of the interrelationships it explores. Break-even analysis is not only concerned with the level of activity which produces the break-even point (where neither profit nor loss is produced). It is more concerned with how costs and profits behave at other levels. This is why the alternative term. Cost-volume-profit (c-v-p) is often used. Break-even analysis or c-v-p analysis is relied upon for short term planning and decision making. It uses principles of mar...