Definition
Cost of Goods Sold (COGS)
Cost of Goods Sold is the direct cost of producing the goods or services a company sells, including raw materials, direct labour and manufacturing overheads.
COGS appears just below revenue on the income statement, and revenue minus COGS gives gross profit. It includes only costs directly tied to production, excluding indirect costs like sales, marketing and administration.
Movements in COGS, often driven by raw-material and commodity prices, directly affect gross margin. For Indian manufacturers exposed to imported inputs, currency depreciation can raise COGS, which is why analysts watch the COGS-to-sales ratio across the commodity cycle.
Related terms
- Operating MarginOperating margin is the percentage of revenue left as operating profit after deducting the costs of running the core business.
- Inventory Turnover RatioThe inventory turnover ratio measures how many times a company sells and replaces its inventory over a period, indicating how efficiently stock is managed.
- Profit and Loss StatementThe profit and loss statement, or income statement, reports a company's revenues, expenses and resulting profit or loss over a period.
- Gross MarginGross margin is revenue minus the cost of goods sold, expressed as a percentage of revenue, showing the profitability of the core product before operating overheads.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.