Profit-Volume Analysis

Profit-Volume Analysis is a financial tool that examines how changes in sales volume impact a company's profit. It helps businesses understand the relationship between production or sales levels and profitability, identifying the point where revenues cover all costs—called the break-even point. By analyzing this relationship, managers can make informed decisions about pricing, costs, and sales targets to achieve desired profit levels. Essentially, it shows how increasing or decreasing sales affects profitability, enabling better planning and risk management.