COGS and Gross Profit for a UAE Trading Business: A Simple Guide
How to calculate cost of goods sold and gross margin for a trading or retail business, with a worked example.
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If you buy and resell goods, cost of goods sold (COGS) and gross profit are the first numbers to get right.
The formula
COGS = opening inventory + purchases − closing inventory
Gross profit = revenue − COGS
Gross margin = gross profit ÷ revenue
A worked example
A trading company in Dubai starts the quarter with AED 80,000 of stock, buys AED 300,000 of goods and ends with AED 95,000 of stock. Revenue is AED 450,000.
- COGS = 80,000 + 300,000 − 95,000 = AED 285,000
- Gross profit = 450,000 − 285,000 = AED 165,000
- Gross margin = 36.7%
Try your own figures in the COGS calculator.
What to include in purchases
The cost of goods plus freight-in and import costs that are part of landing them. Exclude recoverable input VAT, rent and general overheads.
Markup vs margin
A 50% markup is a 33.3% margin. Do not mix them when you set prices. Use the markup calculator.
Why your closing stock matters
COGS depends on the closing stock figure. Count stock regularly, or use an inventory system that updates stock on every sale and purchase. See inventory turnover for how fast stock is moving.
From gross profit to net profit
Subtract operating expenses to reach operating profit. The EBITDA calculator walks through EBITDA, EBIT and net profit.
Keep it automatic
When purchases and POS or invoice sales post to the same system, COGS updates on every transaction. Pyalm Books does this and is free during beta. Start free.