COGS to Sales Ratio

Definition: The cost of goods sold (COGS) to sales ratio shows the percentage of sales revenue used to pay for expenses which vary directly with sales.

Formula:

COGS to Sales ratio = Cost of Goods Sold / Sales

Example 1:
BPP Ltd. has cost of sales $100,000, sales for the year $200,000, sales returns $80,000. Then,
 Net sales = 200,000 - 80,000 = $120,000
 COGS to Sales ratio = 100,000 / 120,000 = 83.33%

Example 2:
Company ABC has the following information:
Opening stocks $30,000
Closing stocks $10,000
Purchases $25,000
Sales $70,000
Purchases returns $5,000
Then,
COGS = Opening stocks + (Purchases - Purchases returns) - Closing stocks = 30,000 + (25,000 - 5,000) - 10,000 = 40,000

COGS to Sales ratio = 40,000 / 70,000 = 57.14%

* Next: Sales Growth Ratio Formula & Analysis

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