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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Value marginal product

Value marginal product

Marginal value product.


Dumping margin

Dumping margin

In a case of dumping, the difference between the "fair price" and the price charged for export. Used as the basis for setting anti-dumping duties.


Net profit margin

Net profit margin

Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid.


Margin securities

Margin securities

Securities which may be bought or sold on margin. In the USA, an approved list of margin securities is published by the Federal Reserve Board.


Marginal revenue

Marginal revenue

The change in total revenue as a result of producing one additional unit of output.


Further Suggestions

marginal tax rate
operating margin
Maintenance margin
profit margin
Unmargined account
Undermargined account
Marginal utility
Original margin
Margin requirement
Marginal rate of substitution
Initial margin requirement
Marginal rate of transformation
Profit margin
initial margin
Marginal propensity
Contribution margin
Marginal propensity to import
Effective margin (EM)
Marginal tax rate
Profit margin
margin call
Marginal propensity to consume
Margin account (stocks)
Marginal cost
Buy on margin


 
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