Cost of Goods Sold Definition and Explanation

Our Financial Analysis Success Kit is Ready!

Click the button to learn more about the Financial Analysis Success Kit

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

1. The eBook "Learn Ratio Analysis In Minutes"

2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

3. A BONUS...Our eBook of "Key Financial Statement Terms"

4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Take a Look

Quick Definition

The cost of creating and offering for sale the goods or services a company provides.

Explanation of Cost of Goods Sold

Also called the Cost of Sales and listed on the Income Statement, the Cost of Goods Sold is the cost to the company the products or services they sell. The Cost of Goods Sold is typically the first item under Net Sales on the Income Statement.

Importance of Cost of Goods Sold

The Cost of Goods Sold typically is the largest single expense for most companies, so this figure is extremely important. This figure alone is really of much value, as it needs to be compared to other financial figures, such as Net Sales or Inventories.

An especially good sign for a company is if the Net Sales is increasing over time, and the Cost of Goods Sold is not increasing as much, staying the same, or the best case – going down! This could mean that while its sales income is increasing, it is able to manage its costs associated with selling those goods or services.