What it is:
Raw materials are commodities, parts or substances that are assembled or processed to form a final product.
How it works (Example):
For example, the raw materials involved in chocolate chip cookies are butter, sugar, eggs, flour, vanilla, baking powder and chocolate.
Why it Matters:
Raw materials determine the quality and cost of producing an item. Many raw materials are commodities that trade on the futures market. For many companies, acquiring raw materials at a good price makes the difference between having a profitable and having an unprofitable year.