The Margin of Safety Ratio

question 114

Multiple Choice

The margin of safety ratio

• A) is computed as actual sales divided by break-even sales.
• B) indicates what percent decline in sales could be sustained before the company would operate at a loss.
• C) measures the ratio of fixed costs to variable costs.
• D) is used to determine the break-even point.

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Definitions:

Wealth

The total value of all financial assets and physical possessions owned by an individual or entity, minus any liabilities.

Standard Deviation

A statistical measure of the dispersion or variability in a set of data, indicating how much individual data points diverge from the mean value.

Risk Averse

A description of an individual or entity that prefers to avoid risk and would choose a certain outcome over a gamble with a potentially higher, but uncertain, return.

Portfolio

A group of investment vehicles comprising stocks, bonds, commodities, as well as cash and its equivalents, together with mutual funds and ETFs.