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GuruFocus has detected 3 Warning Signs with Eaton Corp PLC \$ETN.
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Eaton Corp PLC (NYSE:ETN)
Cost of Goods Sold
\$13,400 Mil (TTM As of Dec. 2016)

Eaton Corp PLC's cost of goods sold for the three months ended in Dec. 2016 was \$3,319 Mil. Its cost of goods sold for the trailing twelve months (TTM) ended in Dec. 2016 was \$13,400 Mil.

Cost of Goods Sold is directly linked to profitability of the company through Gross Margin. Eaton Corp PLC's Gross Margin for the three months ended in Dec. 2016 was 31.81%.

Cost of Goods Sold is also directly linked to Inventory Turnover. Eaton Corp PLC's Inventory Turnover for the three months ended in Dec. 2016 was 1.45.

Definition

Cost of goods sold (COGS) refers to the Inventory costs of those goods a business has sold during a particular period.

Eaton Corp PLC Cost of Goods Sold for the trailing twelve months (TTM) ended in Dec. 2016 was 3291 (Mar. 2016 ) + 3419 (Jun. 2016 ) + 3371 (Sep. 2016 ) + 3319 (Dec. 2016 ) = \$13,400 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

Cost of Goods Sold is directly linked to profitability of the company through Gross Margin.

Eaton Corp PLC's Gross Margin for the three months ended in Dec. 2016 is calculated as:

 Gross Margin = (Revenue - Cost of Goods Sold) / Revenue = (4867 - 3319) / 4867 = 31.81 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A company that has a moat can usually maintain or even expand their Gross Margin. A company can increase its Gross Margin in two ways. It can increase the prices of the goods it sells and keeps its Cost of Goods Sold unchanged. Or it can keep the sales price unchanged and squeeze its suppliers to reduce the Cost of Goods Sold. Warren Buffett believes businesses with the power to raise prices have moats.

Cost of Goods Sold is also directly linked to another concept called Inventory Turnover:

Eaton Corp PLC's Inventory Turnover for the three months ended in Dec. 2016 is calculated as:

 Inventory Turnover = Cost of Goods Sold / Average Inventory = 3319 / 2291 = 1.45

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Inventory Turnover measures how fast the company turns over its inventory within a year. A higher inventory turnover means the company has light inventory. Therefore the company spends less money on storage, write downs, and obsolete inventory. If the inventory is too light, it may affect sales because the company may not have enough to meet demand.

Usually retailers pile up their inventories at holiday seasons to meet the stronger demand. Therefore, the inventory of a particular quarter of a year should not be used to calculate inventory turnover. An average inventory is a better indication.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Eaton Corp PLC Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 COGS 9,382 11,191 8,782 9,633 11,261 11,448 15,369 15,646 14,292 13,400

Eaton Corp PLC Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 COGS 3,916 3,847 3,593 3,675 3,597 3,427 3,291 3,419 3,371 3,319
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