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Margin of Safety?

CA Prashanth Reddy
09/08/2018 0 0

What is the Margin of Safety?

Suppose a class 11th student need 33 marks to pass a paper.

If a student gets exactly 33 marks, then he will be a pass. These 33 marks are called Break-Even-Point Marks.

 

If a student get marks above 33, then such excess marks shall be safety marks for him hence shall be called Margin of Safety Marks (i.e. bonus marks in layman language)

 

Similarly, Margin of Safety means Sales above Break-Even Point Sales. Profit is ZERO at BEP Sales. The company makes a profit only when the margin of safety sales occurs.

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