【A.06.03】How many sales (in percentage) 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.
The margin of safety (MOS)..

✅ ..a financial concept used to measure the difference between the current or projected level of sales and the break-even point of sales.

✅ ..measures the extent to which a company’s sales can decline before it starts to incur losses.


The formula for..

✅ ..the margin of safety (MOS) in percentage (%) can be expressed as:


Current or projected Sales:

🚩 The actual or expected level of sales for a given period.

✅ Breakeven Sales:

🚩 The sales level at which a company’s total revenue equals its total costs and expenses, resulting in zero profit zero loss.


The margin of safety percentage indicates..

✅ ..the percentage of the current or expected sales that exceed the break-even sales point.


For illustration..

✅ ..Briefly, let’s say a company’s current or projected sales are $100,000 and a break-even sales point of $60,000, the margin of safety would be calculated as follows:


✅ That interprets the company’s sales could decline by up to 40% before it starts to incur losses.


The higher the margin of safety percentage..

✅ ..the greater the cushion a company has against unexpected declines in sales.


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