The safety margin as a share of sales is 5.54%.
The break-even point amount is deducted from the actual or projected sales, and the result is divided by sales; the result is stated as a percentage in accounting.
What percentage is a good margin of safety?
- The vast majority of value investors often won't buy a security unless the MOS is estimated to be between 20 and 30 percent. The investor will only buy a security if the current share price is 20% less than the intrinsic value determined by their valuation if the hurdle is set at 20%.
- The margin of safety will be determined as a percentage of sales as follows:
- (expected sales - break even sales) / anticipated sales = ($352000 - $332500) / $352000 = $19500 / $352000 = 0.0554 = 5.54%
- The margin of safety demonstrates the amount that sales can decline before a company experiences a loss. Profit, regardless of break-even point, simply indicates how much loss or income was produced during the accounting period.
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