Two calculators in one. In business mode, see how much sales can drop before you hit break-even, in dollars, percent and units. In investing mode, compare a share price with your intrinsic value estimate and get the price to buy below for the cushion you want.
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Type of margin of safety
$
Break-even sales
$
Rent, salaries, insurance and other costs that do not vary with sales.
%
(Sales − variable costs) ÷ sales.
$
$
Shows the margin of safety in units.
$
Your estimate, e.g. from a DCF or Graham number.
$
%
Your minimum discount to value before buying.
Enter your values to see the result.
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How to use the Margin of Safety Calculator
Choose the mode: Business for break-even analysis or Investing for stock valuation.
Business: enter actual or budgeted sales and either break-even sales or fixed costs and contribution margin ratio; add a unit price for units.
Investing: enter your intrinsic value estimate, the market price and the margin of safety you require.
Press Calculate margin of safety to see the result, the steps and the tables.
Use the table to see how the cushion changes with sales or which prices meet different margins.
Margin of safety formulas
Measure
Formula
Example
Break-even sales
Fixed costs ÷ Contribution margin ratio
$240,000 ÷ 40% = $600,000
Margin of safety ($)
Actual sales − Break-even sales
$800,000 − $600,000 = $200,000
Margin of safety (%)
(Actual − Break-even) ÷ Actual
$200,000 ÷ $800,000 = 25%
Operating income
Margin of safety ($) × CM ratio
$200,000 × 40% = $80,000
Degree of operating leverage
1 ÷ Margin of safety ratio
1 ÷ 0.25 = 4.0
Investing margin of safety
(Intrinsic value − Price) ÷ Intrinsic value
($80 − $60) ÷ $80 = 25%
Buy-below price
Intrinsic value × (1 − Required margin)
$80 × (1 − 25%) = $60
Two meanings, one idea
In cost accounting, the margin of safety measures how far revenue can fall before the business stops covering its fixed costs. It is used in budgeting, pricing and deciding whether a new fixed cost (a hire, a lease) is affordable. Note that it only counts sales above break-even as profit-producing: every dollar of sales beyond break-even adds the contribution margin ratio to operating income.
In investing, the margin of safety is the gap between what you think a share is worth and what you pay. Because intrinsic value is an estimate built on forecasts, buying well below it leaves room for being wrong. The idea comes from Benjamin Graham's writing on value investing and is widely used by value investors today.
Tips
Use realistic sales figures: compare budgeted sales with a pessimistic case too, and see how the cushion changes in the what-if table.
Raise the cushion by lowering fixed costs, increasing prices or shifting the mix toward higher-margin products.
Be conservative with intrinsic value: use cautious growth rates and a sensible discount rate; a big margin of safety on an optimistic value is not a real margin.
Match the cushion to uncertainty: stable, predictable businesses may justify a smaller margin than cyclical or young companies.
Frequently asked questions
What is the margin of safety formula in accounting?
Margin of safety = (actual or budgeted sales − break-even sales) ÷ actual sales. In dollars it is simply actual sales − break-even sales, and in units it is actual units − break-even units. Example: sales of $800,000 and break-even sales of $600,000 give a margin of safety of $200,000, or 25%.
What is the margin of safety in investing?
It is the discount between a stock's estimated intrinsic value and its market price: (intrinsic value − price) ÷ intrinsic value. Popularized by Benjamin Graham, it is a cushion against errors in your valuation and unexpected bad news. A stock worth an estimated $80 trading at $60 has a 25% margin of safety.
What is a good margin of safety?
For a business, higher is safer: a 30% margin means sales could fall by almost a third before losses start, while under 10% leaves little room. For investors, many value investors require 25% to 50% depending on how predictable the business is and how confident they are in the valuation.
How is break-even sales calculated?
Break-even sales = fixed costs ÷ contribution margin ratio, where the contribution margin ratio = (sales − variable costs) ÷ sales. With $240,000 of fixed costs and a 40% contribution margin ratio, break-even sales are $600,000.
How does margin of safety relate to operating leverage?
The degree of operating leverage equals 1 ÷ margin of safety ratio. A 25% margin of safety means a DOL of 4, so a 10% change in sales changes operating income by about 40%. Businesses with high fixed costs have low margins of safety and high operating leverage.
Why do investors use intrinsic value instead of price in the denominator?
Dividing by intrinsic value expresses the cushion as the share of value you are not paying for, which is how Graham framed it. The calculator also shows upside, (value − price) ÷ price, which is the gain if the price rises to your estimate; it is always larger than the margin of safety.
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