Operating Expenses (OpEx) is a term used within budgeting and spending that is usually refers to a company’s everyday expenses. These are all purchases that are required for the day-to-day essential functions of the organization and are generally exhausted within the same accounting period. Some common examples of OpEx expenses include but are not limited to rent & utilities, wages & salaries, property taxes, business travel, account & legal fees etc.
Operating expenses are important because they can help assess a company’s cost and stock management efficiency. It highlights the level of cost that a company needs to make to generate revenue, which is the main goal of a company.
If a company incurs relatively higher opex as a percentage of sales compared to its competitors, that may indicate they are less efficient at generating those sales.
The disadvantage of looking at a company’s OpEx is that it is an absolute number, not a ratio. Therefore, it is unreasonable to be used as a metric to compare between firms even if they are in the same industry. However, they can be highly instrumental in the horizontal analysis since it can reflect the company’s current performance in the past.