How to Calculate Break Even Point in Stocks

The break even point in stocks is the price at which the total revenue from selling a stock equals the total cost of purchasing it. This concept is crucial for investors to understand when evaluating the profitability of their stock investments.

What is Break Even Point in Stocks?

The break even point in stocks refers to the price at which the total revenue from selling a stock equals the total cost of purchasing it. This is an important concept in investing because it helps determine whether an investment will be profitable.

For example, if you buy a stock at $50 and sell it at $50, you've broken even. If you sell it at $60, you've made a profit. If you sell it at $40, you've incurred a loss.

Key Points

Break even point is the price where revenue equals cost
It helps determine investment profitability
Different from accounting break-even which considers all costs

Break Even Point Formula

The break even point in stocks can be calculated using the following formula:

Break Even Point Formula

Break Even Point = Purchase Price + (Total Costs / Number of Shares)

Where:

Purchase Price = The price at which you bought the stock
Total Costs = All associated costs (brokerage fees, taxes, etc.)
Number of Shares = The quantity of shares you purchased

How to Calculate Break Even Point

Determine your purchase price per share
Calculate all associated costs (brokerage fees, taxes, etc.)
Divide total costs by the number of shares
Add this value to your purchase price to get the break even point

Important Notes

This calculation assumes you sell all shares at the same price
It doesn't account for dividends or capital gains taxes
For more complex scenarios, consider using a financial calculator

Worked Example

Let's calculate the break even point for a stock purchase with the following details:

Purchase Price per Share	$50.00
Number of Shares	100
Brokerage Fee	$10.00
Total Costs	$10.00

Using the formula:

Break Even Point Calculation

Break Even Point = $50.00 + ($10.00 / 100) = $50.10

This means you need to sell each share at $50.10 to break even on your investment.

FAQ

What is the difference between stock break even and accounting break even?: The stock break even point only considers the cost of the stock purchase, while accounting break even considers all costs associated with the investment.
Does the break even point include taxes?: No, the basic stock break even calculation doesn't include taxes. You would need to adjust the calculation to account for capital gains taxes.
Can the break even point be negative?: Yes, if your total costs exceed your purchase price multiplied by the number of shares, your break even point could be negative.
How does the break even point change with dividends?: Dividends can affect the break even point by providing additional income that reduces the required selling price to break even.
Is the break even point the same as the cost basis?: No, the cost basis is the total amount paid for the stock, while the break even point is the price at which revenue equals cost.