What's the Operating Expenses of a Company?

Operating Expenses TL;DR

Operating expenses, often referred to as OPEX, are the costs associated with the day-to-day operations of a business. These are the necessary costs incurred to keep a business running, aside from the direct cost of producing goods or services.

In-Depth Understanding

While the above definition provides a snapshot, there's more to operating expenses. Operating expenses include items such as rent, utilities, office supplies, salaries, insurance, and marketing costs. These costs are usually incurred under normal business operations and are necessary for generating revenue such as R&D or SG&A.

Operating expenses are important for understanding the financial health of a company. Lower operating expenses relative to revenue often signify operational efficiency. However, excessively cutting OPEX may negatively impact a company's productivity or product quality.

Operating expenses are subtracted from gross profit to determine operating income or operating profit, a measure of a company's profitability from its core business operations.

Operating Income = Gross Profit - Operating Expenses

Real-world Examples

A Tech Company - Apple Inc.

For Apple, operating expenses include costs such as research and development, salaries, marketing expenses, and rent for their office spaces and stores.

A Service Company - Uber Technologies Inc.

Uber's operating expenses include costs related to platform development, customer support, sales and marketing, and general administrative costs.

A Retail Company - Starbucks Corporation

Starbucks' operating expenses include the cost of sales, marketing, store operations, general and administrative expenses, and other store operating expenses.