Lesson 02 — Expenses: COGS, Employee, and Other

Where the money goes

Revenue is what comes in. Expenses are what goes out. The difference = profit.

Key expense line items

1. Cost of Goods Sold (COGS) / Cost of Materials Consumed

For manufacturing companies: raw materials + direct production costs. For IT/services companies: this is minimal (people are the main cost).

2. Employee Benefit Expense

Salaries, bonuses, ESOP costs, PF contributions.

• Dominant cost for IT, banking, and service companies
• Typically 8-15% of revenue for manufacturing

3. Other Expenses

Rent, marketing, travel, legal, IT costs, R&D — the catch-all bucket.

4. Depreciation & Amortisation

Spreading the cost of assets (factories, equipment, software) over their useful life.

• Not a cash expense — the cash was spent when the asset was bought
• But it reduces reported profit

5. Finance Costs (Interest)

Interest paid on loans and borrowings.

The P&L waterfall

Key takeaway

Understanding expenses tells you how efficiently a company converts revenue into profit. High revenue with high expenses = low margins = weak business.