Operating Expense

AAA

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".

INVESTOPEDIA EXPLAINS '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.

VIDEO

RELATED TERMS
  1. Operating Expense Ratio - OER

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

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

    Income derived from sources related to a company's everyday business ...
  4. Acquired Fund Fees And Expenses ...

    A line item in a fund-of-funds' prospectus that shows the operating ...
  5. Non-Operating Expense

    An expense incurred by activities not relating to the core operations ...
  6. Operating Income

    The amount of profit realized from a business's operations after ...
RELATED FAQS
  1. What is the difference between a capital expenditure and a revenue expenditure?

    Understand the difference between a company's capital expenditures and revenue expenditures, and how each expense appears ...
  2. Why is it that under some circumstances, capital expenditure cannot be tax-deducted ...

    Understand the meaning of capital expenditures, and learn what the implications are for companies resulting from tax laws ...
  3. 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 ...
  4. What are some examples of the main types of capital expenditures (CAPEX)?

    Learn about different expenses with acquiring assets that are considered capital expenditures and should be depreciated over ...
  5. What are the differences between operating expenses and overhead expenses?

    Learn how operating expenses and overhead expenses affect profit margins; businesses are unique and different costs may fall ...
  6. 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 ...
  7. 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: ...
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. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  3. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  4. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  5. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  6. Savings

    Top 10 Fastest Growing Industries in the United States

    Six of the ten fastest growing industries are directly related to new residential construction.
  7. Charts & Patterns

    How To Become A Private Equity Associate

    With the right planning, second- and third-year investment banking analysts can graduate to an associate position at a private equity firm.
  8. Charts & Patterns

    Are These the 10 Best Oil Stocks of 2015?

    Instead of trying to pick a bottom in oil, pick a good company. Here are 10 to consider.
  9. Charts & Patterns

    Stock Analysis Basics: How To Forecast Revenue and Growth

    Forecasted revenue and growth projections are important components of security analysis, leading to a stock’s future worth.
  10. Fundamental Analysis

    Cash Flow From Financing Activities (CFF)

    Cash flow from financing activities is typically the third and final section of the statement of cash flows. It shows changes to cash resulting from activities such as issuing stocks and bonds ...

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center