Question

Danny owns two companies where he has recently made changes. The margin of safety ratio for Company X is 42% and the margin of safety ratio for Company Y is 25%. What does this imply about the two companies?

Answer 1

Answer: Company X could lose more business before it will begin experiencing financial difficulties when it is being compared to company Y

Explanation:

Margin of safety ratio simply helps to understand the extent to which there'll be drop in sales before a company will begins to make a loss.

Since the margin of safety ratio for Company X is 42% and the margin of safety ratio for Company Y is 25%, it means that Company X could lose more business before it begins experiencing financial difficulties when it is compared to company Y.