Cost of goods sold (COGS) is a financial metric that represents the direct costs associated with producing and delivering a product or service. It includes the cost of raw materials, labor, and overhead expenses that are directly tied to the production process. COGS is an important measure for businesses as it helps to determine the profitability of a product or service. By subtracting COGS from revenue, a company can calculate its gross profit margin. This metric is critical for businesses as it provides insight into the efficiency of their operations and helps to identify areas where costs can be reduced. COGS is also used to calculate inventory turnover, which is a measure of how quickly a company is able to sell its inventory. This metric is important for businesses as it helps to ensure that inventory levels are optimized and that cash flow is maximized. Overall, COGS is a key financial metric that provides valuable insights into the profitability and efficiency of a business’s operations.
