【A.06.04】Is the margin of safety higher the better or lower better?

Briefing Note
Reading comprehension is a skill that empowers lifelong learning intelligence for a better self.
The margin of safety (MOS)..

✅ ..is the difference between the actual or expected level of sales and the breakeven point.

✅ ..represents the amount by which sales can fall before a company starts making a loss.


A higher margin of safety..

✅ ..[▲ MOS] is generally considered better because it indicates that a company has a greater cushion to absorb unexpected drops in sales or increases in costs.

✅ ..provides a sense of security to managers and investors, as it indicates that the company is less likely to experience financial distress.


A lower margin of safety..

✅ ..[▼ MOS] indicates that a company is operating closer to its breakeven point, which means that it is more vulnerable to changes in the market or any unexpected expenses.

✅ ..can be a cause for concern for managers and investors, as it may increase the risk of financial losses or bankruptcy.


In conclusion..

✅ ..a higher margin of safety would be better than the lower one.


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