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How to calculate Margin of safety

The Margin of safety formula, with plain worked examples you can check yourself.

Margin of safety = (Sales − BE) ÷ Sales × 100

The result is a percentage (%).

Worked examples

Sales = 11250 · BE = 9000Margin of safety = 20%
Sales = 10000 · BE = 6000Margin of safety = 40%
Sales = 20000 · BE = 12000Margin of safety = 40%

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Multiply by 100 to show the answer as a percentage.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Costs & Break-even.

Related terms

Fixed costsVariable costsCost of goods soldOverheadDepreciationDirect costs

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