The margin of safety is the amount that sales can drop before the company incurs a loss.

Question

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The margin of safety represents the difference between actual or projected sales and the level of sales at which the company starts to incur a loss. In other words, it is the cushion or buffer that allows the company to absorb fluctuations in sales volume or revenue without negative consequences for its profitability or viability. Therefore, a higher margin of safety implies a lower risk of losses and a more stable financial situation for the company.

The Margin of Safety Is the Amount That Sales Can