What does COGS stand for in financial terms?

COGS stands for Cost of Goods Sold, which refers to the direct costs attributable to the production of the goods that a company sells. This includes costs such as materials and labor involved in creating the products. Understanding COGS is essential for businesses, as it directly impacts profitability. By accurately calculating COGS, a company can determine its gross margin, which is crucial for assessing financial health and making informed pricing and inventory decisions.

The focus on production costs helps businesses evaluate their operational efficiency and pricing strategies, making it a vital concept in financial management for startups and established companies alike.