Formula: (Actual sales revenue - Breakeven sales revenue) x 100 ÷ Actual sales revenue.
Example: The actual sales revenue of a company = Rs.10000
Breakeven sales revenue of a company = Rs.2000
Its margin of safety will be: (10000-2000) x 100 ÷ 10000 = 80%
The company has 80% margin of safety which means that even if the revenue of the company falls by 80%, still the company will run in profits.
Another Definition in the stock market context is that Margin of Safety is the difference between the intrinsic value of a stock and its market price where intrinsic value is assumed to be more than the market price.