Twenty two (22) listed firms on the Nigerian Stock Exchange (NSE) expended N801.11 billion at half year 2018 as costs of sales, representing 20 percent increase over N669.34 billion spent same period in 2017. According to Investopedia, a cost of sales represents how much a firm expends to produce goods and services to be sold to consumers. The rising cost of sales shows the magnitude of challenges being faced by entrepreneurs especially those in the real sector of the Nigerian economy.
When the cost of sales is expressed as a percentage of gross earnings or revenue, it shows how much firms in Nigeria spent in the first six months of this year to generate naira revenue. It was 64.36 percent in the first half of 2018 as against 63.57 percent between January and June 2017. On the average, this ratio shows that Nigerian firms expended 64 kobo to generate 100 kobo revenue in the first six months of this year and in similar period in 2017.
On this metric, our analysis shows that Eterna, First Aluminium, Forte Oil, Conoil and Total Nigeria topmost on the table.
Eternal topped the table of firms with the highest cost of sales relative to revenue at half year 2018 as it spent N170.43 billion out of N172.98 billion it made as revenue by June 2018. This compares with N77.28 billion it spent at half year 2017as cost of sales from N79.64 billion the company made in that period as revenue, implying that Eterna expended 99 kobo to generate 100 kobo revenue at half year 2018 as against 97 kobo in comparative period in 2017.
“ Our technical partner did not want us to associate the company’s brand with low quality raw materials, which are mostly imported. The surge in our cost of sales reflected the high cost of those imported raw materials”, a senior employee with the company who pleaded anonymity said.
“ If exchange rate falls, the cost of those raw materials will automatically go down”, the person added.
First Aluminium expended N3.67 billion and N3.68 billion out of N3.28 billion and N3,96 billion revenue it made at half year 2017 and 2018 respectively. This implies that it cost First Aluminium 93 kobo and 87 kobo to generate 100 kobo in half year 2017 and 2018 respectively.
Forte Oil spent 91 kobo to make 100 kobo between January and June 2018. From N61 billion realised as revenue between January and June 2018, the firm spent N56.15 billion, whereas in similar period in 2017, it cost the firm N40.6 billion to realise N46.7 billion revenue, which amounted to spending 87 kobo to realise 100 kobo in that period.
Conoil’s cost of sales relative to revenue increased from 87 percent at half year 2017 to 88 percent at half year 2018. In the first half of 2018, the firm spent N48.09 billion to generate N54.5 billion revenue whereas in similar period in 2017, it was N38.9 billion the firm spent to realise N44.9 billion revenue.
It was 87.05 percent and 89.52 percent at half year 2018 and 2017 for Total Nigeria, which expended N136.03 billion and N136.65 billion as cost of sales from N156.3 billion and N152.65 billion revenues that were made in H1 2018 and H1 2017 respectively.
“For companies in the downstream sector of the Nigerian economy, the high cost of sales is a reflection of the high landing costs of petroleum products which the subsidy regime cannot fully accommodate”, Kayode Tinuoye, an analyst with the United Capital, said.
Pharmaceutical firms recorded increase in cost of sales to revenue at half year 2018 as against what was obtainable at half year 2017. On the average, a firm in this sector spent 57 kobo to earn 100 kobo in H1 2018 compared with 58 kobo to generate a naira income in same period in 2017. May & Baker has the highest cost of sales relative to revenue amongst the healthcare firms in our analysis.
The cement industry experienced downward movement in its cost of sales relative to total revenue. This ratio declined from 43 kobo in H1 2017 to 41 kobo in H1 2018. Both Dangote Cement and Cement Company of Northern Nigeria incurred N204 billion and N183 billion costs of sales in H1 2018 and h1 2017, representing 26 percent and 27 percent of the total costs of sales of the 22 firms that featured in the analysis.
