|
|
Margin of safety |
|
|
|
 Home Site Map Add Term Search About Us Contributors |
Margin of safetyThe 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 safetyWith 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 Similar MatchesProfit marginProfit marginIndicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin. Undermargined accountUndermargined accountA margin account that no longer meets minimum maintenance requirements, requiring a margin call on the investor. Marginal revenue productMarginal revenue productThe additional revenue generated by the extra output from employing one more unit of a factor of production. In a competitive industry this equals the marginal value product, but with imperfect competition it is smaller, due to the implied price reduction. Determines factor prices in competitive factor markets. Unmargined accountUnmargined accountA cash account held at a brokerage firm. Marginal utilityMarginal utilityThe change in total satisfaction as a result of consuming one additional unit of a specific good or service. Further Suggestionsinitial marginInitial margin requirement Marginal propensity to save Marginal product Margin requirement (options) Operating profit margin Marginal value product Margin account (stocks) Effective margin (EM) Gross profit margin operating margin margin call margin account profit margin Maintenance margin Margin trading Profit margin Marginal rate of transformation Initial margin Marginal Marginal tax rate Original margin Margin Marginal cost Marginal propensity |
|
|
|