Final answer:
The Margin of Safety is a financial concept used to calculate the difference between actual or projected sales and the break-even point. It is expressed as a percentage and can help businesses understand their financial stability.
Step-by-step explanation:
The Margin of Safety is a financial concept that is often used in business and investing. It represents the difference between the actual or projected sales and the break-even point, which is the level of sales needed to cover all expenses. It is expressed as a percentage to show how much buffer or cushion a business has in meeting its financial obligations.
To calculate the Margin of Safety as a percentage, you can use the formula:
Margin of Safety = (Actual or Projected Sales - Break-Even Sales) / Actual or Projected Sales * 100%
For example, if a company has a break-even point of $500,000 and its actual or projected sales are $700,000, the Margin of Safety would be:
(700,000 - 500,000) / 700,000 * 100% = 28.57%.