Price-over-Cost

A metric measuring the difference between changes in product selling prices and changes in input costs.

Price-over-cost is a financial metric that measures a company's ability to change its product selling prices relative to changes in its underlying input costs, such as raw materials, labor, energy, and logistics. It is typically calculated by subtracting the change in unit input costs from the change in the average selling price over a specific period. This metric allows analysts to isolate how much of a company's profit growth or contraction is driven by pricing decisions versus cost fluctuations. For investors, a consistently positive price-over-cost spread is a strong indicator of pricing power and a durable competitive moat. It demonstrates that a company can successfully pass rising inflationary pressures onto its customers to protect its bottom line. Conversely, a negative price-over-cost spread indicates that the company is absorbing cost increases, which will compress profit margins. When analyzing this metric, investors should look at the trend over several quarters, especially during periods of high inflation or supply chain disruption. While a positive spread is generally favorable, a high price-over-cost achieved solely by aggressive price hikes can sometimes lead to demand destruction if customers begin switching to cheaper alternatives. This metric is highly scrutinized in cyclical, capital-intensive sectors like chemicals, packaging, and heavy manufacturing.

A cement manufacturer increases its average selling price per ton by $10.00, while its production costs (fuel, electricity, and raw materials) increase by $6.00 per ton over the same period. The resulting price-over-cost is calculated as: $10.00 (Price Change) - $6.00 (Cost Change) = $4.00 per ton, indicating expanding unit margins.