Margin of Safety

• What is break-even in business terms?

  Point where profit and loss are equal
• How do businesses use break-even graphs?

  To plot break-even points and analyze sales
• What does the margin of safety indicate?

  Sales can fall before reaching break-even
• How is the margin of safety calculated?

  Margin of safety = actual sales − break-even sales
• What does a margin of safety of 50 products indicate?

  The business is profitable on 50 items sold
• Why might a business decide not to sell a product with a low margin of safety?

  It poses a high risk of loss
• What are the key components of break-even analysis?

  • Break-even point (BEP)
  • Margin of safety
  • Actual sales vs. break-even sales
• What is the significance of the break-even point for a business?

  • Indicates no profit or loss
  • Helps in decision-making for product sales
  • Assists in financial planning and risk assessment