Investing term

What is Cost of goods sold (COGS)?

The direct cost of producing whatever was sold — materials, direct labor, manufacturing overhead.

Cost of goods sold (COGS) is the direct cost of producing whatever a company sold — raw materials, direct labor, and manufacturing overhead. Subtract it from revenue and you get gross profit. Tracking COGS as a share of sales reveals pricing power: a company that keeps COGS low relative to revenue is converting more of each sale into profit.

For example

A furniture maker with $10M in sales and $6M in COGS keeps $4M of gross profit — 40 cents on every revenue dollar before other costs.

Cost of goods sold (COGS) is taught hands-on in Stage 14 — Reading Financial Statements.

See the lesson →

Related terms

Accounts receivable (A/R)Money customers owe the company for goods or services already delivered but not yet paid.AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.
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