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Margin of Safety - Explained

What is the Margin of Safety?

Written by Jason Gordon

Updated at April 7th, 2022

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Table of Contents

 What is the Margin of Safety?

 What is the Margin of Safety?

Managers often like to know how close projected sales are to the break-even point.

The excess of projected sales over the break-even point is called the margin of safety. 

The margin of safety represents the amount by which sales can fall before the company incurs a loss.

The calculation is:

Margin of safety (in units) = Projected sales (in units) − Break-even sales (in units)

The margin of safety can also be stated in sales dollars.

Margin of safety (in sales $) = Projected sales (in sales $) − Break-even sales (in sales $)

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margin of safety

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