Cost of goods sold

The direct cost of producing or delivering what was sold in the period - materials, the labour that makes the product, and whatever else the company places above the gross profit line.

Example

Northgate's cost of goods sold was 2,520,000 against revenue of 4,200,000 in Year 2.

Important

What sits inside this line is partly a presentation choice. Delivery, support and hosting can be defensibly placed above or below it, so two identical businesses can report gross margins many points apart.

Related terms

• Gross margin — Gross profit - revenue less the cost of goods sold - expressed as a percentage of revenue. It asks whether the thing being sold makes money.
• Income statement — A report of what a business earned and what it spent over a period of time, arranged in layers from revenue at the top down to net profit at the bottom.
• Inventory — Goods a business has bought or made and has not yet sold - raw materials, work in progress and finished stock.

Lessons that explain it

• The income statement: what it claims was earned — The income statement is a claim about performance over a period, assembled under rules that deliberately ignore when the cash moved. Read properly it is the most useful statement; read literally it is the most misleading. (12 min)

All 578 terms in the Investing glossary