A margin of safety which is applied to a company’s financial ratios. For example, the current ratio relates current assets to current liabilities and indicates a company’s ability to pays its short-term debt. A ratio of more than one is usually a normal level because anything less than one indicates that the company’s liabilities exceed its assets. A high ratio means more of a safety cushion. If this ratio has a cushion of up to 1.1 (that is assets exceed liabilities by 1.1 times) then any ratio lower than 1.1 may trigger an alarm. Likewise, if a company’s debt-to-equity ratio has a cushion of up to 30% of debt, any ratio above that level would be a source of concern for the company.
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Comments