Enter the estimated value and purchase price into the calculator to determine the margin of safety percentage.

Margin Of Safety Percentage Formula

The following formula is used to calculate the Margin of Safety Percentage:

MarginOSP = ((EV - PP) / EV) * 100

Variables:

  • Margin of Safety Percentage is the percentage representing the difference between the estimated value and the purchase price, relative to the estimated value.
  • Estimated Value is the anticipated value of the asset or investment.
  • Purchase Price is the amount paid to acquire the asset or investment.

To calculate the Margin of Safety Percentage, subtract the Purchase Price from the Estimated Value. Divide the result by the Estimated Value. Multiply the quotient by 100 to convert it to a percentage.

What is a Margin Of Safety Percentage?

The Margin of Safety Percentage is a financial indicator that measures the difference between the actual or expected sales level and the break-even sales level, expressed as a percentage. It is a risk measure used in budgeting, financial modeling, and accounting to show a company’s sales buffer. The higher the margin of safety, the lower the risk of not meeting the break-even point. It provides insight into the risk of an investment: the higher the margin of safety percentage, the lower the risk associated with the investment. It is calculated by subtracting the break-even point from the actual or expected sales and then dividing by the actual or expected sales. This percentage indicates how much sales can decrease before the company or a project becomes unprofitable.

How to Calculate Margin Of Safety Percentage?

The following steps outline how to calculate the Margin of Safety Percentage.

  1. First, determine the actual sales ($).
  2. Next, determine the breakeven sales ($).
  3. Next, subtract the breakeven sales from the actual sales to find the margin of safety ($).
  4. Finally, divide the margin of safety by the actual sales and multiply by 100 to calculate the Margin of Safety Percentage.
  5. After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem:

Use the following variables as an example problem to test your knowledge.

actual sales ($) = 5000

breakeven sales ($) = 4000