Hey everyone,
Perhaps a silly question, but something I'm kind of stumped on. How would one go about calculating COGS for an auto company with financial service operations? COGS for the auto segment is easy and self explanatory of course, but I'm wondering whether or not to include interest expenses from the financial service segment into the total COGS of the company? Please help!
Thanks
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Interest Expense isn't COGS.. Lol It's Interest Expense
Don't embed interest expense into COGs. However, I think you could consider including the interest expense "above the line" so it affects Operating Income on the notion that this financial service division is part of the company's core operations.
I wouldn't unless you are running a separate debt schedule to only consider revenue and interest on the financial services division assets and liabiities
For financial institutions, it is considered a "cost of goods sold". I know it sounded retarded, but I'm trying to clarify since what financial service firms "sell" is credit, so their cost of selling said credit could be classified as a COGS.
E.g. in Bloomberg, it is put under the same expense line item as auto COGS as cost of revenues.
Also, no debt schedule. Just three statement op model.
There are two things to consider - are the revenues directly associated with these interest expenses embedded in the revenue line? Another important distinction of placement is whether you should count it under EBITDA or not, so you should be thinking about it that way.
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