Operating Expenses (OPEX)

Written by Fmi.Online Friday December 9, 2022
Operating expenses (OPEX) are costs not directly associated with the production of the goods or services but commonly incurred during regular business activities. In other words, these are day-to-day expenses that cannot be classified as costs of producing the company’s goods or services or costs of purchasing assets.  

Explanation :

  OPEX are costs incurred while developing regular business activities. Such expenses can vary widely depending on the industry and the nature of the business itself, but most of the operating expenses can be classified in these categories: rent, payroll, marketing, research, maintenance, subscriptions, utilities, legal fees, among others. These expenses are normally listed separately in financial statements  to determine the company’s operating profit, which is sometimes referred to as EBIT or EBITDA depending on the purpose of the calculation. They are normally classified under three big categories: administrative expenses, sales expenses, and general expenses.  

In a nutshell :

  • An operating expense is an expense a business incurs through its normal business operations. 
  • Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.
  • The Internal Revenue Service (IRS) allows businesses to deduct operating expenses if the business operates to earn profits.
  • By contrast, a non-operating expense is an expense incurred by a business that is unrelated to the business's core operations.
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