【A.06.02】How many sales (in dollars) are affordable to drop before starting to make losses?

Briefing Note
Reading comprehension is a skill that empowers lifelong learning intelligence for a better self.
Margin of safety..

✅ ..(MOS in short), is a financial concept that measures the amount of cushion a company has between its current sales level and its break-even point.

✅ ..represents the difference between the actual or projected sales level and the breakeven sales level, expressed either in quantity, in dollars or in percentage.


The formula to calculate..

✅ ..the margin of safety (MOS) in dollars, as follows:

🚩 Margin of Safety (in dollars) = Current Sales ($) — Breakeven Sales ($)


✅ Current Sales:

🚩 ..represent the total amount of sales revenue generated by the company during a specific period.

✅ Breakeven Sales:

🚩 ..represent the sales level at which the company neither makes a profit nor incurs a loss.

✅ With the above information being available, you can then subtract the Breakeven Sales in dollars from the Current Sales in dollars to find out the Margin of Safety (MOS) in dollars.

✅ MOS represents to the extent by which the sales amount can decrease (fall) before the company starts incurring a loss.


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