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8 November, 11:19

A margin of safety of 30% means that every dollar in revenue generated thirty cents in profit.

A. True

B. False

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Answers (1)
  1. 8 November, 13:31
    0
    B) False

    Explanation:

    Margin of safety measures the percentage difference between actual sales and break even sales.

    Margin of safety acts like a buffer zone that the Company can lose before it stops making profits.

    Margin of safety is calculated as follows:

    Margin of Safety = (Current sales - break even sales) / Current sales

    30% margin of safety indicates that the Company can bear to lose 30% of its sales before it reaches to break even level.

    Net profit margin of 30% shows that every dollar of sales earns 30 cents in profit.
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