.svg)
Cost of Goods Sold (COGS)
What is Cost of Goods Sold (COGS)?
Cost of Goods Sold (COGS) in the construction industry represents the direct costs associated with the production of goods or services that a company sells. These costs may comprise the cost of raw materials such as lumber, steel, concrete; direct labor costs; storage costs, and direct utility costs. It can also include direct expenses like subcontractor costs, labor burden (i.e., benefits, insurance, taxes related to employee wages), material costs, and equipment costs that are directly attributable to a project's completion. COGS does not include indirect expenses such as sales and distribution costs or overhead costs such as office rent and utilities. In essence, COGS in construction is directly tied to specific projects and is a key factor in determining a project's gross profit and thus a company´s profitability.
Trusted by trade contractors across the country
Other construction terms
What is an Equity Turnover Ratio?
An equity turnover ratio is a financial metric that is highly relevant within the construction industry. Essentially, it measures how efficiently a construction company leverages its equity to generate revenue. The ratio is calculated by dividing the company’s annual sales by average shareholder equity. The resulting number indicates how many times the company has turned its equity into revenue during a given year. A high equity turnover ratio is typically a good sign, indicating a company’s efficient use of its shareholder’s equity. It reflects the company's ability to manage its operations and utilize its assets effectively. This ratio is particularly important in the construction industry as it involves high capital expenditure and risk. Underinvestment or overinvestment can negatively impact profitability. Therefore, this ratio can be a key determinant of a construction company's financial health and operational efficiency.
What is Bottom-of-Chain or Low-Tier?
Bottom-of-Chain or Low-Tier in the construction industry refers to the lowest level of subcontractors or suppliers involved in a construction project. They are at the end of the construction chain, typically providing specific services or materials as subcontracted by higher-tier companies. These can include specialized tasks like electrical work, plumbing, landscaping, or supply of construction materials. Their work is crucial as they lay the foundation for more complex tasks to be executed by upper-tier contractors. They are also bound by the contracts in place, like other members of the chain, although directly managed by mid-tier subcontractors instead of the main contractor.
What is a Release?
In the construction industry, a release is a legal instrument that acts to terminate any legal liability between the releasor and the releasee, signed by the releasor. It is often used to settle disputes or claims, with one party agreeing to release the other from any existing obligations, responsibility or further legal action in return for a negotiated compensation. It may also refer to a point in a construction project where work is considered complete to a given level, allowing for payment or the transfer of responsibility to the next party involved in the process.
Ready to end the fire drill and get paid faster?
