Processing math: 100%

Margin of Safety Calculator







Margin of Safety Formulas

The formulas to calculate Margin of Safety are:

Margin of Safety in Dollars=Current SalesBreakeven Point

Margin of Safety Ratio=Current SalesBreakeven PointCurrent Sales

Margin of Safety Percentage=(Current SalesBreakeven PointCurrent Sales)×100

Margin of Safety in Units=Current SalesBreakeven PointSales Price Per Unit

Description

The margin of safety is the difference between the current or estimated sales and the breakeven point. It provides a cushion for investors and managers against potential losses due to inaccuracies in their sales estimates.

A high margin of safety indicates a low risk of loss, while a low margin of safety signals a high risk. It helps investors and managers to make adjustments and provide leeway in their financial estimates.

Example Calculation

Let's assume the following for Baggies Enterprise:

To calculate the Margin of Safety:

Margin of Safety in Dollars=80,00050,000=30,000

Margin of Safety Ratio=80,00050,00080,000=0.375

Margin of Safety Percentage=(80,00050,00080,000)×100=37.5%

Margin of Safety in Units=80,00050,00010=3,000 units