The fundamental difference between the accounting break-even point and the discounted break-even point (or project break-even) lies in the consideration of shareholder remuneration and value creation.

Here are the detailed distinctions:

1. The Accounting Break-Even Point (Break-Even Point)

This threshold corresponds to the minimum volume of sales necessary for the company to break even, i.e. a net profit of zero.

• Calculation: It is obtained by dividing the sum of the fixed costs by the margin on unit variable cost, also named contribution margin (Unit Selling Price – Unit Variable Cost).
• Components: Fixed costs include cash charges, accounting depreciation and often debt-related financial expenses.
• Major limitation: It balances the income statement but ignores the shareholders’ requirement for profitability. It does not guarantee that the project will create value, only that it will not generate an accounting loss.

2. Discounted break-even (project break-even)

This threshold corresponds to the minimum sales volume necessary for the Net Present Value (NPV) of the project to be zero (or positive).

• Calculation: It is usually determined by iteration (or target-value function in a spreadsheet) by looking for the volume that cancels the NPV.
• Components: In seeking to cancel the NPV, this calculation implicitly incorporates the Weighted Average Cost of Capital (WACC). This means that it covers not only all operational costs and the initial investment, but also the remuneration demanded by all investors (creditors and shareholders).

Synthesis of the difference

The discounted breakeven point is always higher than the accounting breakeven point. The reason for this is that the accounting breakeven point only seeks to cover the costs recorded in the accounts (including debt), whereas the discounted breakeven point must generate a sufficient cash flow surplus to also cover the cost of equity (the risk taken by the shareholder).

In summary:

• Accounting breakeven: “How much should I sell so as not to lose money (accounting)?”
• Updated breakeven: “How much do I need to sell to create value (cover the cost of capital)?”