Operating Expense

Loading the player...

What is an 'Operating Expense'

An operating expense is a category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors.

Also known as "OPEX".

BREAKING DOWN 'Operating Expense'

For example, the payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses.

While laying off employees and reducing product quality can initially boost earnings and may even be necessary in cases where a company has lost its competitiveness, there are only so many operating expenses that management can cut before the quality of business operations is damaged.

RELATED TERMS
  1. Expense

    1. The economic costs that a business incurs through its operations ...
  2. Overhead Ratio

    A comparison of operating expenses and total income that is not ...
  3. Operating Loss - OL

    The net loss recorded as a result of a company's unprofitable ...
  4. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  5. Total Annual Fund Operating Expenses

    For a mutual fund or other type of fund management structure, ...
  6. Operating Income

    The amount of profit realized from a business's operations after ...
Related Articles
  1. Investing

    What are Operating Expenses?

    An operating expense is any expenditure made for the purpose of operating a business. These expenses are the day-to-day costs that help keep the business going. Operating expenses are reflected ...
  2. Economics

    Calculating Operating Ratio

    An operating ratio compares a company’s operating expenses to its net sales.
  3. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  4. Term

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  5. Fundamental Analysis

    How to Calculate the OER

    An operating expense ratio describes a property’s operating expense compared to the income it generates.
  6. Mutual Funds & ETFs

    Pay Attention To Your Fund’s Expense Ratio

    Even small differences in an expense ratio can have a big impact on a portfolio.
  7. Investing

    Operating Profit

    Operating profit is the profit generated from the core business of a company before accounting for interest and taxes.
  8. Entrepreneurship

    5 Warnings Signs of Risk for a Small Business

    Learn how to keep on the lookout for these five potential warning signs of risk that your small business is stalling out or failing.
  9. Entrepreneurship

    The 4 Most Common Reasons a Small Business Fails

    Discover the most common reasons small businesses fail, including capital formation, management concerns, planning issues and marketing missteps.
  10. Investing Basics

    Operating Income

    Amount of profit realized from a business's operations after taking out operating expenses - such as cost of goods sold (COGS) or wages - and depreciation.
RELATED FAQS
  1. What is the difference between an operating expense and a capital expense?

    Learn the differences between an operating expense and a capital expense, and see how the two types of expenses are treated ... Read Answer >>
  2. What is the difference between CAPEX and OPEX?

    Discover the differences between a company's capital expenditures and operational expenses, and find out how tax laws apply ... Read Answer >>
  3. What is the difference between capital and operating expenses?

    Learn about the types of expenses that a company incurs. Understand the difference between capital and operating expenses, ... Read Answer >>
  4. What are the most common operating expenses for an online business?

    Learn about the common expenses of online businesses and find out about some of the tax implications of new business expenses ... Read Answer >>
  5. What are the differences between operating expenses and SG&A?

    Learn what businesses mean when they list operating expenses or SG&A as line items on an income statement; understand how ... Read Answer >>
  6. What are the different types of operating expenses?

    Learn about the different types of operating expenses and how they impact companies. Some are fixed costs while others are ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center