What is Margin of Safety ?

The excess of total sales revenue over the break-even sales is know as the Margin of Safety. ( i.e. Total sales - Break-Even sales ). It represents the amount by which sales revenue can fall before a loss is incurred. As at break-even point there is no profit no loss, sales beyond the break-even point represent margin of safety because any sales above the break-even point will give some profit.

Margin of Safety = Total sales - Sales at Break-even point

Margin of Safety ratio = Total sales - Sales at BEP / Total sales * 100