Margin of Safety - Explained
What is the Margin of Safety?
Written by J. Mance Gordon
Updated at April 19th, 2024
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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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