![]() ![]() Any sales above the break even point represent profit. Understanding your break even point allows you to know how many sales you need to make to cover your costs or make a profit. ![]() Revenue − cost of goods sold − expenses = net income Break even point It's expressed as an amount rather than a percentage, and you might hear net income referred to as net profit, net earnings or the "bottom line". Net income is your business' profit for the accounting period, considering all costs and expenses such as salaries, advertising, tax expenses, insurance and overhead. (Sales − cost of goods sold) / sales x 100 = gross profit margin Net income You can use it to identify your most lucrative products and how efficiently you're using your resources to produce your goods or services. This calculation is commonly used to understand the profitability of a product. ![]() Gross profit margin is often expressed as a percentage, showing gross profit as a percentage of net sales. Gross profit margin calculates how much money is left from the sale of your goods or services, once you've taken into account how much it costs to produce your goods or deliver your services. The value of the inventory you have available for sale at the end of the accounting period. How much it costs to purchase new inventory throughout the accounting period. The value of the inventory you have in stock at the start of the accounting period. The cost of goods sold formula:īeginning inventory + purchases of inventory − ending inventory = cost of goods sold The calculation is also used within other accounting formulas that give you further insight into your company's financial performance. Knowing cost of goods sold can help your business set the right price for its products. You might see cost of goods sold abbreviated to COGS or referred to as the cost of sales or cost of services. In this guide we explain five important accounting formulas, how they're calculated and when your business might use them:Īnd our easy-to-use calculator lets you quickly work out each formula, helping you understand your company’s financial health in minutes.Ĭost of goods sold refers to how much it costs to create the goods or provide the services that your business sells. But you don’t have to be an accountant to understand your business’ financial performance. As a small business owner, there are times when you're likely to find yourself in need of some bookkeeping – whether you’re completing a Self Assessment, exploring ways to improve profitability or gearing up for an expansion or funding.Īccounting can seem daunting. ![]()
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