Operating Expense

Examples of Operating Expense in the following topics:

• Operating Expenses, Non-Operating Expenses, and Net Income

  • Operating expenses and non operating expenses are deducted from revenue to yield net income.
  • An operating expense is the ongoing cost of running a product, business, or system.
  • Paper, toner, power, and maintenance costs represent operating expenses.
  • In business, operating expenses are day-to-day expenses such as sales and administration.
  • Operating expenses, non operating expenses and net income are three key areas of the income statement.

• Basic Earning Power (BEP) Ratio

  • The distinction between EBIT and Operating Income is non-operating income.
  • However, in most cases, EBIT is relatively close to Operating Income.

• Times-Interest-Earned Ratio

  • Interest Charges = Traditionally "charges" refers to interest expense found on the income statement.
  • EBIT is a measure of a firm's profit that excludes interest and income tax expenses.
  • It is the difference between operating revenues and operating expenses.

• Other Expenses

  • Other expenses include SG&A, depreciation, amortization, R&D, finance costs, income tax expense, discontinued operations expenses.
  • Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, rent, and all expenses and taxes directly related to producing and selling product, etc. )
  • General expenses- general operating expenses and taxes that are directly related to the general operation of the company, but don't relate to the other two categories.
  • Other expenses or losses - expenses or losses not related to primary business operations, (e.g. foreign exchange loss).
  • Operational expenses and non-operational expenses are the main cash outflow of a business.

• Combining Operating Leverage and Financial Leverage

  • To calculate total leverage, we multiply Degree of Operating Leverage by Degree of Financial Leverage.
  • Operating and financial leverage can be combined into an overall measure called "total leverage. " Total leverage can be used to measure the total risk of a company and can be defined as the percentage change in stockholder earnings for a given change in sales.
  • Another way to determine total leverage is by multiplying the Degree of Operating Leverage and the Degree of Financial Leverage.
  • Fully derived, we see that to multiply Degree of Operating Leverage and Degree of Financial Leverage, we subtract fixed costs and interest expense from the total contribution margin (revenue minus variable cost times the number of units sold), and divide total contribution margin by this result.
  • I = Interest Expense.

• Introduction to the Income Statement

  • The income statement shows revenues and expenses for a specific period.
  • Net income is what is left after all the revenues and expenses have been accounted for, it is also known as "Net Profit. "
  • It then calculates operating expenses and, when deducted from the gross profit, yields income from operations.
  • Adding to income from operations is the difference of other revenues and other expenses.
  • Operating income occurs from any activity that is a direct result of its primary business, such as sales of goods and services.

• Operating Margin

  • It is found by dividing operating income by revenue, where operating income is revenue minus operating expenses .
  • That means that it does not include things like interest and income tax expenses.
  • Since non-operating incomes and expenses can significantly affect the financial well-being of a company, the operating margin is not the only measurement that investors scrutinize.

• Day-to-Day Needs

  • Operating cash flow refers to the daily cash inflows and outflows generated from business revenues earned, excluding certain costs.
  • Operating cash flow refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.
  • Cash outflows occur due to cash payment of business expenses, purchase of assets, and payment on debt .

• Sample Income Statement

  • It then calculates operating expenses which, when deducted from the gross profit, yield 'income from operations. ' The difference of other revenues and expenses is then applied to the income from operations.
  • Selling, General and Administrative expenses (SG&A or SGA): Consists of the combined payroll costs.
  • Selling Expenses: Represents expenses needed to sell products (salaries of salespeople, commissions and travel expenses, advertising, freight, shipping, depreciation of sales, store buildings and equipment, et cetera).
  • Other expenses or losses: Expenses or losses not related to primary business operations (foreign exchange loss).
  • Finance costs: Costs of borrowing from various creditors (interest expenses, bank charges).

• Operations Management

  • Operations management is the management of processes that transform inputs into goods and services that add value for the customer.
  • Operations management is the management of processes that transform inputs into goods and services that add value for the customer.
  • Operations is one of the three strategic functions of any organization.
  • Operations decisions include decisions that are strategic in nature, meaning that they have long-term consequences and often involve a great deal of expense and resource commitments.