The financial strength margin is an economic indicator that demonstrates the firm's resilience to production cuts. This value shows how much you can reduce the rate of release of new products without incurring losses. The indicator is expressed as the ratio of the difference between the volume of sales that exist at a certain point in time and the volume of sales that the company will have at the break-even point. The total value of these calculations is presented as a percentage. Naturally, the higher the indicator reflecting financial strength, the more stable the position of the enterprise and the lower the risk of economic losses for it. The largest impact on this value is the size of existing costs. The higher they are, the less, at the current time, as well as in the foreseeable future, the margin of financial strength and vice versa. The greatest effect is the reduction of existing fixed costs. In order to calculate the existing safety margin, a special formula is used: Financial safety margin = (Actual sales volume - Sales at break-even point) / Actual sales * 100%. To make a full assessment of the existing margin of financial strength, it will be necessary not only to calculate according to the above formula, but also to analyze various aspects of economic activity. First of all, you should find out what effect the difference between the existing indicators of sales and production has, and also take into account the existing indicator of an increase in the number of inventories. Depending on the results obtained, the financial strength margin will be adjusted.
More here - https://en.wikipedia.org/wiki/Margin_of_safety_(financial)
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