IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v06y2003i04ns0219091503001183.html
   My bibliography  Save this article

Cash Breakeven Analysis and Leverage Indices

Author

Listed:
  • Keishiro Matsumoto

    (Division of Business Administration, University of the Virgin Islands, St. Thomas, VI 00803, USA)

  • James P. Hoban

    (Department of Finance, Ball State University, Muncie, IN 47306, USA)

Abstract

This paper presents a new model of cash breakeven analysis that is designed to assess the risk of insolvency due to illiquidity. Its first step is to parametrize the cash flow statement to this end. Then, it derives several cash breakeven formula. Next, it derives new leverage indices and establishes their linkage to the cash sales coverages. The comprehensive index shows the sensitivity of the firm's surplus cash balance to changes in the sales level after all planned payments, both required and voluntary, are made. The new cash breakeven analysis is contrasted with the traditional profit breakeven analysis by means of a hypothetical example firm. A simulation experiment is provided to elucidate the strengths of the method as a contemporary tool of financial planning.

Suggested Citation

  • Keishiro Matsumoto & James P. Hoban, 2003. "Cash Breakeven Analysis and Leverage Indices," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 501-547.
    • Handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:04:n:s0219091503001183
    DOI: 10.1142/S0219091503001183
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091503001183
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091503001183?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Cash breakeven analysis; cost-volume-profit; leverage indices; elasticity indices;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:04:n:s0219091503001183. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.