Operating Expenses (OpEx)

Definition

The financial accounting term operating expense is used to describe all of the costs associated with the ongoing operations of the company.  Operating expenses appear on the company's income statement.

Explanation

Operating expenses, also known as OPEX, includes expenditures such as the cost of goods sold (direct labor, raw materials), as well as overheads such as selling, general and administrative expenses; research and development; property taxes; and office supplies.

The management of a company attempts to keep operating expenses as low as possible in order to maximize profits.  Operating expenses can be considered the essential costs incurred by a company in order to keep the core business running.

Example

The table below demonstrates how operating expenses can appear on a company's income statement:

Total Revenue  29,611,000
Cost of Goods Sold (15,693,000)
Gross Profit 13,918,000
   
Operating Expenses  
Selling General and Administrative (7,740,000)
Operating Income or Loss 6,178,000

Related Terms

income statement, cost of goods sold, selling general and administrative expenses, discontinued operations