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GuruFocus has detected 2 Warning Signs with Rio Tinto PLC \$RIO.
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Rio Tinto PLC (NYSE:RIO)
Cost of Goods Sold
\$26,799 Mil (TTM As of Dec. 2016)

Rio Tinto PLC's cost of goods sold for the six months ended in Dec. 2016 was \$13,321 Mil. Its cost of goods sold for the trailing twelve months (TTM) ended in Dec. 2016 was \$26,799 Mil.

Cost of Goods Sold is directly linked to profitability of the company through Gross Margin. Rio Tinto PLC's Gross Margin for the six months ended in Dec. 2016 was 27.13%.

Cost of Goods Sold is also directly linked to Inventory Turnover. Rio Tinto PLC's Inventory Turnover for the six months ended in Dec. 2016 was 4.39.

Definition

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

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. Rio Tinto PLC Cost of Goods Sold for the trailing twelve months (TTM) ended in Dec. 2016 was \$26,799 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.

Rio Tinto PLC's Gross Margin for the six months ended in Dec. 2016 is calculated as:

 Gross Margin = (Revenue - Cost of Goods Sold) / Revenue = (18281 - 13321) / 18281 = 27.13 %

* 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:

Rio Tinto PLC's Inventory Turnover for the six months ended in Dec. 2016 is calculated as:

 Inventory Turnover = Cost of Goods Sold / Average Inventory = 13321 / 3033 = 4.39

* 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.

Rio Tinto PLC Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 COGS 6,527 38,775 34,332 35,262 36,155 39,505 36,104 33,910 27,919 26,799

Rio Tinto PLC Semi-Annual Data

 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15 Jun16 Dec16 COGS 17,894 21,611 18,092 18,012 16,893 17,017 14,007 13,912 13,478 13,321
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