Margin of safety

 

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Margin of safety

The term given by Benjamin Graham, 'the father of value investing', to the idea that if you buy shares for less than two thirds of their net asset value, you automatically have a cushion against any deterioration in the company's trading position in the future. Put another way, 'buy cheap'.Graham's view was that it is extremely difficult to accurately predict a company's future earnings. For an investment to be 'safe', therefore, he liked to see a margin between the value of its net current assets and its share price. If the share price was below the net current assets divided by the number of shares in issue, he would consider buying it.One of the problems with Graham's approach is that in bull markets it is very difficult to find companies that fulfil his criteria. A second problem is that many of the fastest growing companies in modern economies are those whose assets are intangible - for instance, the value of their intellectual property. Under the Graham rubric, these sorts of assets would be excluded.

Margin of safety

With respect to working capital management, the difference between (1) the amount of long-term financing and (2) the sum of fixed assets and the permanent component of current assets.



Margin of safety

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Marginal propensity

Marginal propensity

The fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity.


Gross margin

Gross margin

The difference between the selling price of an item and the purchase or manufacturing cost, expressed as a percentage of the selling price.For example, if it costs a company 6 to manufacture an item and the selling price is 10, the gross margin is:(10 - 6) / 10 x 100 = 40%When looking at a company's Report and Accounts, the gross margin of the business as a whole is its turnover less the cost of sales, divided by the turnover, multiplied by 100.For example: (2,000,000 - 1,200,000) / 2,000,000 x 100 = 40%


Marginal tax rate

Marginal tax rate

The additional tax which someone pays on each 1 increase of his or her taxable income. In the UK the tax bands for 2003-2004 tax year are:10 per cent on the first slice of earnings22 per cent on next slice40 per cent on top sliceUnder the 'progressive' tax system, once someone's earnings take him into the top tax bracket, any extra earnings will be taxed at the top rate. So someone who is in the 40 per cent bracket has a marginal tax rate of 40 per cent.


Marginal propensity to save

Marginal propensity to save

The fraction of a change in income (or perhaps disposable income) that is saved.


Value marginal product

Value marginal product

Marginal value product.


Further Suggestions

Marginal revenue
Effective margin (EM)
Profit margin
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OTC margin stock
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Margin security
Profit margin
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Maintenance margin
margin
initial margin
profit margin
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margin call
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Original margin
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