Margin of Safety
Margin of safety represents the strength of the business. It enables a business to know what is the exact amount it has gained or lost and whether they are over or below the break even point.
margin of safety = (current output - breakeven output)
margin of safety% = (current output - breakeven output)/current output × 100
When dealing with budgets you would instead replace "Current output" with "Budgeted output".
If P/V ratio is given then profit/ PV ratio
Read more about this topic: Break-even (economics)
Famous quotes containing the words margin of, margin and/or safety:
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—Vladimir Nabokov (1899–1977)
“Then he rang the bell and ordered a ham sandwich. When the maid placed the plate on the table, he deliberately looked away but as soon as the door had shut, he grabbed the sandwich with both hands, immediately soiled his fingers and chin with the hanging margin of fat and, grunting greedily, began to much.”
—Vladimir Nabokov (1899–1977)
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