Operating Expense

Loading the player...

DEFINITION of 'Operating Expense'

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. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  2. Operating Expense Ratio - OER

    A measure of what it costs to operate a piece of property compared ...
  3. Sequential Growth

    A measure of a company's short-term financial performance that ...
  4. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  5. Berry Ratio

    The ratio of a company's gross profits to operating expenses. ...
  6. Operating Profit

    The profit earned from a firm's normal core business operations. ...
Related Articles
  1. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Entrepreneurship

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  4. 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 ...
  5. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  6. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  7. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  10. Stock Analysis

    Analyzing Porter's Five Forces on Under Armour (UA)

    Learn about Under Armour and how it differentiates itself in the competitive athletic apparel industry in light of the Porter's Five Forces Model.
RELATED FAQS
  1. What are average operating expenses for the oil and gas sector?

    The oil and gas sector plays an important role in the economy by drilling, extracting, and processing oil and gas. Because ... Read Full Answer >>
  2. What is the difference between capital and operating expenses?

    A capital expense is used to purchase or invest in a long-term asset, while an operating expense is any short-term expense ... Read Full Answer >>
  3. How is Net Operating Income (NOI) used in real estate?

    Net operating income (NOI) is used in the real estate market to determine the revenue that a property generates less operating ... Read Full Answer >>
  4. How can a growing business avoid stagnation when using zero-based budgeting?

    Zero-based budgeting is commonly used by companies to review expenses in their annual budgets and create cost management ... Read Full Answer >>
  5. Does location matter for taxes when calculating gross sales?

    Tax policies regarding gross sales differ by state and region. Some city jurisdictions, counties and states require a percentage ... Read Full Answer >>
  6. What is the difference between an operating expense and a capital expense?

    An operating expense (OPEX) is an expense required for the day-to-day functioning of a business. In contrast, a capital expense ... Read Full Answer >>
  7. To what extent do changing input prices affect the profitability of the chemicals ...

    The chemicals sector is strongly influenced by raw materials and commodities prices. Price volatility is a significant enough ... Read Full Answer >>
  8. How do operating expenses affect profit?

    As a general rule, an increase in any type of business expense lowers profit. An income statement has three levels of profit, ... Read Full Answer >>
  9. What are the major expenses that affect companies in the airline industry?

    The major expenses that affect companies in the airline industry are labor and fuel costs. Labor costs are largely fixed ... Read Full Answer >>
  10. What is the difference between a capital expenditure and a revenue expenditure?

    The difference between capital expenditures and revenue expenditures is essentially the same as the difference between capital ... Read Full Answer >>
  11. Why is it that under some circumstances, capital expenditure cannot be tax-deducted ...

    Current tax laws do not allow the vast majority of capital expenditures to be fully tax-deducted for the year in which the ... Read Full Answer >>
  12. What is the difference between CAPEX and OPEX?

    Capital expenditures (CAPEX) and operating expenses (OPEX) represent two basic categories of business expenses. They differ ... Read Full Answer >>
  13. What are some examples of the main types of capital expenditures (CAPEX)?

    A capital expenditure (CAPEX) is the expenditure of funds or assumption of a liability in order to obtain physical assets ... Read Full Answer >>
  14. What are the differences between operating expenses and overhead expenses?

    Several types of expenses affect profits for a business including equipment costs, inventory and facilities costs. There ... Read Full Answer >>
  15. How rapidly can expanding sales reduce a firm's earnings?

    In order to operate and make money, a company must spend money. Revenue - the dollar amount of sales - can be seen on a company's ... Read Full Answer >>
  16. What are some commonly missed deductions for business owners?

    If you own a business, you are eligible to deduct certain business-related expenses. These include deductions for the following: Home ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center