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Operating Expenses |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Operating expenses, or OpEx, are the recurring expenses and costs associated with the day-to-day activities of the business, such as research and development expenses and sales and administration expenses, that are essential to the continuous operation and maintenance of a property but not directly associated with production. In short, this is the money the business spends in order to turn inventory into throughput.
Operating expenses are also called non-manufacturing expenses and are usually subdivided into Research and Development Expenses, Selling, General, and Administrative expenses, and Depreciation and Ammortization. In general it includes expenses such as payroll, sales commissions, employee benefits and pension contributions, transportation and travel, amortization, rent, repairs, and taxes, etc. Operating expenses do not include items such as mortgage payments and capital expenditures, but do include depreciation of plants and machinery used for business purposes.
"Operating expenses" as shown in a Company's Financial statements (Income Statement) corresponds to the sum of the company's operating expenses for a certain period of time, such as a month(usually a quarter) or year(annual operating expenses).
The annual operating expenses shown below are the actual costs it takes to run the property, such as property tax, insurance, maintenance, repairs, management fees, utilities, and supplies(as mentioned above) for the corresponding fiscal year.
A ratio used as an indicator of a company's operating efficiency is the Operating Margin. The formula used to calculate the Operating Margin is:
[(Total Revenues – Total Operating Costs) / (Total Revenues)] * 100
This item represents the difference between the Total Revenues and the Total Operating Costs divided by Total Revenues, and is expressed as a percentage. Specifically it is the percentage of Operating Income to Total Revenues. The higher it is the more efficient is a Company.
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