WHAT IS AN OPERATING EXPENSE ?

An operating expense is the cost a company encounters while running its core business operations. This cost is not in direct relation to the manufacture of its products or services, which is why the cost of goods sold (COGS) is not considered a part of operating expense. These expenses include advertising and marketing expense office supplies, maintenance and repairs, salaries and wages, etc., mentioned in the company's income statement.

Operating cost is the expense an enterprise encounters while running a business on a daily basis. It is calculated by adding COGS and total operating expenses. It is an essential financial metric used to assess a firm’s present performance to that of its past. However, it is suggested that OPEX is used as a percentage of revenue generated from sales to compare the efficiency among the competitors, called an operating ratio.

The management’s agenda is to increase the net income of the company or the bottom line. Therefore, the management is always keen to look at OPEX numbers. In an accounting period, depreciation is the cost of the fixed and tangible asset that has been used up. The total depreciation cost of the asset is divided throughout its life span.

It is a non-cash operating expense. The higher the operating profit margin better the company is performing, keeping other things equal. Operating revenue can be increased if the company is able to reduce the operating expenses leading to an increase in the operating profit margin.


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