Accountants use acronyms like a second language, GM, COGS, EBIT, EBITDA, NPAT, ROI, ROCE, NPV, IRR, AR, AP, WCE, DSO the list goes on and on…
Over time a large amount of accounting and financial acronyms have become part of the business community vernacular which is great for communicating and understanding your business, but which may seem like a foreign language at first!
Here are a couple of the profitability acronyms to help your understanding:
- GSV is the full price of the goods or services you sold, also known as Gross Sales Value.
- Disc. is the discount or rebate that you need to provide to secure the sale, this is often viewed as a cost of doing the business.
- NSV is the Net Sales Value and is equal to the GSV less the Disc. you provide to secure the sale.
- COGS are the Cost Of the Goods Sold, for a manufacturing business the COGS are the direct costs, direct labour and factory overheads incurred, for other businesses it can be the purchase cost of the product you are selling.
- Gross Profit Margin also known as GM, is the residual sale dollars after you subtract COGS from your NSV.
- The Gross Profit Margin % or GM% is a good ratio to understand how much money you make from every $1 of sale. In the example for every dollar of NSV generated. You can compare your GM% with competitors within your industry to compare efficiencies.
- The GM are the funds available for your business to pay its overheads.