Business calculators

Margin of Safety Calculator

The Margin of Safety calculator is a quick and easy way to assess your business risk. By inputting a few key financial indicators, you can identify areas of potential weakness and take steps to protect your margins.

Understanding Margin of Safety

What is the margin of safety?

The margin of safety — sometimes called the safety margin ratio — is a financial ratio representing the gap between sales profitability and the breakeven point. It answers the question, “how much cushion does a business have to remain profitable even when sales fall?” 

You calculate the margin of safety during a break-even analysis. You can calculate using estimated sales to predict future profitability and for current (actual) sales to understand current profitability. As your margin of safety cushion‘s your business against sales fluctuations, it’s an important ratio for private and public equity investors. 

Margin of Safety Formulas

Margin of safety in dollars 

Calculate the margin of safety in dollars to know the amount of money you can lose in sales before your business operates at a loss. This is valuable information regarding the cash you have (or expect to have) on hand due to business operations

margin of safety (dollars) = current sales – breakeven point

Margin of safety ratio

Calculate the margin of safety ratio as a quick gut check to know if you have a healthy or unhealthy margin of safety. Where calculating in dollars is helpful, you won’t know if it’s healthy unless you look at the ratio. 

margin of safety (ratio) = current salesbreakeven point / current sales

Margin of safety percentage

It may be more beneficial to represent your margin of safety as a percentage instead of a ratio. A margin of safety percentage also works as a gut check to see if you have a healthy margin. 

margin of safety (%) = [current salesbreakeven point / current sales] * 100

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Common margin of safety questions

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