Explain Briefly The Meaning Of Margin Of Safety?
The margin of safety represents the difference between the sales at break-even point and the total sales. It can be expressed as a percentage as well as in value. The size of the margin of safety shows the strength of the business. If the margin of safety is small, it may indicate that the firm has large fixed expenses and is more vulnerable to changes in sales. In other words, if the margin of safety is large a slight fall in sales may not affect the business very much but if it small even a slight fall in sales may adversely affect the business.
