Business & Commerce
Intermediate

Margin of Safety

How far sales can fall before the business hits its break-even point.

Formula

MoS=Sales−Break-evenSales×100%MoS = \dfrac{Sales - Break\text{-}even}{Sales}\times 100\%

Variables

MoSMargin of safety
SalesActual/expected sales
Break-evenBreak-even sales

Example

($100k − $60k)/$100k = 40%

Did You Know?

A thin margin of safety warns that a small dip in sales could push a firm into a loss.

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