Home Investing Dictionary Investment Term Operating Expenses ( OPEX )
Operating Expenses ( OPEX )
Written by Kenny Foo   
Tuesday, 10 March 2009 13:41

Operating Expenses ( OPEX ) is the expenses of a corporation to run its on-going daily business operation. On the other words, operating expenses ( OPEX ) is a day-to-day expenses such as sales and administration, or research & development excluding cost of goods sold( direct labor cost and direct material cost to produce the products ) . Sometime, operating expenses is also referred as operational expenditure to turn the inventory into income. Depreciation and amortization of plants and equipments in production process are also parts of operating expenses ( OPEX ). Besides, other examples for operating expenses are rentals, repairs, transportation and travels, pension contributions, employee benefits, payroll, and sales commission. Take note that interest and taxes are excluded from operating expenses ( OPEX ). Hence operating expenses ( OPEX ) is used to obtain earnings before interest and taxes (  EBIT ) by deducting it from revenue. One of the responsibilities for management of a corporation is to reduce operating expenses ( OPEX ) for that corporation in order to increase net profit or bottom line. When the management is reducing the operating expenses ( OPEX ), they need to make sure that their action won't impact corporation daily operation and won't impact the corporation's ability to compete with its competitors.

Besides, there is another investing term that many investors confuse with operating expenses ( OPEX ) - capital expenditure ( CAPEX ). Capital expenditures ( CAPEX ) is the cost of purchasing non-consumable parts for business operation. For examples, buying a van for delivery is a capital expenditure ( CAPEX ) but the annual maintenance and petrol usage is considered as operating expenses ( OPEX )

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Last Updated ( Tuesday, 10 March 2009 16:21 )
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