Financial StatementsBeginner

Cost of Goods Sold

COGS

The direct cost of making the products a company sold in the period.

Detailed explanation

It includes raw materials and direct labour tied to production. Revenue minus COGS gives gross profit.

Formula

COGS = Opening inventory + Purchases − Closing inventory

Example

Opening stock ₹20 cr + purchases ₹100 cr − closing stock ₹30 cr = COGS ₹90 cr.

Why it matters

Rising COGS against flat prices squeezes margins first.

Key points

  • Excludes selling and admin costs.
  • Drives gross margin.
  • Inventory method affects it.

Related terms

Gross MarginInventory

More in Financial Statements

Income StatementRevenueGross MarginEBITDAEBITOperating Margin

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.