Yueming_Guo_+_reference2[1]

Yueming_Guo_+_reference2[1] - The Advantages of Margin of...

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The Advantages of Margin of Safety and Operating Leverage When a company needs to make decisions concerning projects and future decisions, they need to have a process for determining risk. They cannot arbitrarily decided whether or not to go into a certain venture there must be a quantitative way of evaluating if a particular business venture is too risky or not. Therefore, businesses need to run a margin of safety analysis or determine their operation leverage. Yet, each has distinct advantage and disadvantages. According to Bamber, Braun, and Harrison (2008), margin of safety "is the expected sales over breakeven sales. This is the "cushion," or drop in sales, the company can absorb without incurring a loss (Bamber Braun, & Harrison, 2008, p 385).” The margin of safety is an important part of managerial accounting. It is what determines how risky or not a business venture will be. There are many factors that will determine whether or not a venture is valid or not. By using past information gathered sales are able to be predicted and paired against the past
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This note was uploaded on 09/10/2011 for the course ACCT 101 taught by Professor Kang during the Spring '08 term at S.F. State.

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Yueming_Guo_+_reference2[1] - The Advantages of Margin of...

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