In the above example, the operating expense formula would be: The operating expense formula will depend on what expenses the business incurs.įor example, let’s say that company VP has the following operating expenses: Having an understanding of operating expenses is important in order for you to be able to compute for it. Not to mention the administrative functions that you probably already have, and why you need to pay salaries and wages for your employees. If your business does not have any employees and you, as the owner, are left alone to run it, its growth will be limited to what your capacity is. While these expenses don’t necessarily add to the value of a business’s products or services, they are still necessary.įor example, if you don’t pay for the salaries and wages of your employees, they will quit on you, or even worse, sue you. light, water, heating), travel and transportation costs, supplies expenses, repairs and maintenance, etc. It is often unavoidable and necessary for the daily operations of a business.Ĭommon examples of operating expenses are salaries and wages, rent, utilities (e.g. To recap, an operating expense is any expense that is incurred by a business through its operating activities and does not directly contribute to the cost of sales (products or services). It would also be good to know what to do with the operating expenses figure, so in addition to knowing the formula, we will also be discussing one of the financial ratios that are related to it: the operating expense ratio. After learning about what an operating expense is from one of our previous articles ( Operating Expense – Defined and Some Examples), the next step would be to know how to compute for it.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |