![]() You would not include general operating costs, like the cost of the stand itself or your neighborhood marketing flyers. For example, if you own a lemonade stand, your COGS would include sugar, lemons, water, and labor. Not all expenses are included in the group, since not all business expenses directly relate to a transaction. Cost of Goods Sold (COGS): This is the expense your company incurs that directly relates to the production of your product or service.This amount appears on your company’s balance sheet. Your business’s liquidity is most often dictated by your cash on hand. Cash: This term doesn’t necessarily refer to literal dollar bills, but instead refers to your business’s bank account balance.You can find this number at the top of your income statement, which is what causes revenue to also be called “topline.” Revenue: Money that flows into your company.Before looking at the formula itself, let’s define some key accounting terms: The gross profit margin, sometimes called gross margin, helps you analyze your company’s overall financial health. ![]() ![]() Ready to learn more? This post discusses what the gross profit margin formula is, how to use it in your business, and how to improve your gross profit over time. ![]() The gross profit margin formula is a straightforward way for you to actually determine how much revenue you’ve made after accounting for the costs of goods or supplies. However, many businesses aren’t aware of the vital differences between cash and revenue. And it’s true, the ability to bring in money consistently is essential to the success of your business. The idea that “cash is king!” is casually accepted as gospel by most small business owners. ![]()
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