A large margin of safety means a business can absorb a drop in sales without making a loss. It is a key risk measure in cost-volume-profit analysis and budgeting.
How to use the Margin of Safety Calculator
- Current (estimated) sales
- Break-even sales
- Selling price per unit
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter current (or budgeted) sales and break-even sales, and the selling price per unit.
Tips
- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.
Common mistakes to avoid
- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.
Inputs explained
| Field | What to enter |
|---|---|
| Current (estimated) sales | Amount in your currency |
| Break-even sales | Amount in your currency |
| Selling price per unit | Amount in your currency |
What each result means
- Margin of safety = [Current (estimated) sales] – [Break-even sales]
- Margin of safety percentage = ([Current (estimated) sales] – [Break-even sales])÷[Current (estimated) sales]×100
- Margin of safety ratio = ([Current (estimated) sales] – [Break-even sales])÷[Current (estimated) sales]
- Margin of safety in units = ([Current (estimated) sales] – [Break-even sales])÷[Selling price per unit]
Example values
How the main result changes when Current changes and everything else stays at the example values above:
| Current (estimated) sales | Margin of safety |
|---|---|
| 250,000 | -100,000 |
| 375,000 | 25,000 |
| 500,000 | 150,000 |
| 625,000 | 275,000 |
| 750,000 | 400,000 |
| 1,000,000 | 650,000 |
Formula
Margin of safety = current sales − break-even salesMargin of safety ratio = margin of safety ÷ current salesIn units = margin of safety ÷ price per unitWorked example
Inputs — Current (estimated) sales: $500,000; Break-even sales: $350,000; Selling price per unit: $25.
Results — Margin of safety = $150,000.00; Margin of safety percentage = 30 %; Margin of safety ratio = 0.3; Margin of safety in units = 6,000.
Frequently asked questions
What is a good margin of safety?
Above 20–30% gives a comfortable cushion.
What does a negative margin of safety mean?
Sales are below break-even – the business is making a loss.
Is this the same as Graham's margin of safety?
No – in investing it means buying below intrinsic value.
What formula does the Margin of Safety Calculator use?
Margin of safety = current sales − break-even sales.