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

Similar Matches

Marginal efficiency of capital

Marginal efficiency of capital

The percentage yield earned on an additional unit of capital.


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.


Marginal propensity to save

Marginal propensity to save

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


Marginal product

Marginal product

In a production function, the marginal product of a factor is the increase in output due to a unit increase in the input of the factor; that is, the partial derivative of the production function with respect to the factor. In a competitive equilibrium, the equilibrium price of any factor is its marginal value product in every sector where it is employed.


Profit margin

Profit margin

The difference between what it costs to produce a product or service and the selling price.


Further Suggestions

Margin
Marginal value product
Marginal utility
Marginal rate of substitution
Unmargined account
Margin requirement (options)
Marginal tax rate
Margin account (stocks)
Contribution margin
Marginal revenue product
margin call
Gross profit margin
Undermargined account
Initial margin requirement
Marginal propensity to import
gross margin
Dumping margin
Marginal propensity
Maintenance margin
Initial margin
operating margin
Effective margin (EM)
Margin security
profit margin
Operating profit margin


 
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