Firms that operate at break-even on an accounting profit basis are really losing the opportunity cost of capital on their investments.

Question

Quizplus · Accepted Answer

Break-even on an accounting profit basis means that a firm is just covering its expenses and is not generating any profit. However, the firm is still investing capital and there is an opportunity cost associated with those investments. The opportunity cost is the return that the firm could have earned by investing that capital elsewhere. Therefore, firms that operate at break-even on an accounting profit basis are actually losing the opportunity cost of capital on their investments.

Firms That Operate at Break-Even on an Accounting Profit Basis