In this article, you will learn what operating expenses (abbr. OPEX) are and what they are associated with. This term is often used in corporate finance, and usually refers to those costs that arise periodically when conducting business.
Operating expenses - these are expenses associated with the management of the enterprise and its activities for the sale of goods and products; this is the cost of running a business, which includes any expenses associated with the direct operation of the company. They systematize the expenses of the reporting period that are not related to direct production. PSBU "Expenses" streamline the grouping of expenses of the operating activities of any enterprise for some economic elements:
- labor costs;
- depreciation is the difference that arises if assets such as production equipment or vehicles gradually wear out, as a result of which their market value becomes slightly lower than the original (this item will relate to operating expenses if these assets are used by the business in its operating activities);
- deductions of financial resources for the implementation of social events;
- costs of remuneration of employees - the most common item of operating expenses, in some cases it occupies the largest weight in the total costs of the enterprise;
- other operating expenses - this is marketing, advertising, payment of licenses and legal services, office supplies, payment of utilities, expenses for the purchase of necessary raw materials, expenses for research and scientific activities.
It is worth noting that besides operating expenses there are also capital expenditures (abbr. CAPEX). They, for example, may include the cost of a one-time purchase of new equipment when the old is completely worn out, that is, amortized.
Why is it customary to separate capital and operating expenses? This is due to the fact that any investors and company management should get a more accurate picture of exactly where the financial resources were spent before the profit was made. For example, a bank’s operating expenses are salaries, the purchase of office supplies, and capital expenses are the purchase of premises.
Analytical accounting of operating expenses of an institution or enterprise is organized, taking into account the nature of the activity, especially the work and services performed. Thoughtful formation of analytical accounting is important for determining the methodology, analysis, their essence, as well as for the objective reflection of the financial results (loss or net profit) of the organization.
In all sectors of the economy, operating expenses are distributed by economic elements. These indicators have recently played a more important role in the work of organizations in the conditions of fierce competition not only with foreign, but also with domestic manufacturers.
Firstly, the modern market requires effective and adequate organization management. For success, business leaders must hire highly qualified management personnel. This requires more careful monitoring of the use of funds and a careful analysis of the effectiveness of their use.
Secondly, the successful promotion of services and goods on the market requires significant marketing costs from the enterprise. Due to the high competition, manufacturers are forced to conduct serious and expensive marketing research, spend significant financial resources on advertising and process goods before sale.
Thirdly, the innovative (that is, innovative) nature of the development of current enterprises requires the ability to get used to new conditions, to work confidently in the field of circulation.
How do you get information about operating expenses?
The most popular way to obtain data on the state of operating expenses is to keep records of managerial accounts or use special software for financial management. Indeed, in the event that the amount of expenses changes from year to year (especially in the direction of increasing them), then interested parties (creditors and shareholders) will want explanations from management. The availability of such information will help determine the reasons for the change in spending, which in the future will eliminate the problem of rising costs.