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Next, we’ll project the income statement of our company down to the operating line. Operating Expenses Projection (R&D and SG&A) Therefore, the gross margin is 52.0% while the operating margin is 28.0% in Year 0. The $30 million in SG&A and R&D are the total operating expenses of our company. Given the assumptions above, the Year 0 gross profit is equal to $65 million, and the operating income is $35 million. Operating Expenses Calculation and EBIT Analysis

How OpEx Impacts Operating Income (EBIT) and Operating Margin?īy deducting operating expenses from gross profit, the operating profit (EBIT) and operating margin can then be calculated, as shown below. Operating expenses are paid for using gross profits, which are the earnings once COGS have been subtracted. Occasionally, OpEx can be consolidated into a single line item, but the standard layout is for the expenses to be broken out into multiple line items.įor example, Apple places “Research & Development” and “Selling, General & Administrative” expenses into separate buckets.Īpple Operating Expenses (Source: 2020 10-K)

On the income statement, the section for operating expenses can be found below gross profit and above operating income ( EBIT). Operating Expenses on Income Statement Example The most common examples of operating expenses incurred by companies are listed below: OpEx Examples Note that not all OpEx are fixed costs, as an item like office supplies can be viewed as more of a variable cost since more purchases would be made if production levels were higher. Instead, OpEx remains relatively constant regardless of production volume.įor example, the rent expense for an office is stated on the contract with the building landlord and does not fluctuate based on revenue performance. Unique to operating expenses, the majority of costs classified as OpEx are fixed costs, which means they are NOT directly linked to revenue. Operating expenses (OpEx) are associated with the core operations of a company, but do not directly contribute to the production of the products or services sold. While not directly tied to the revenue generated from the products/services, operating expenses are an essential part of a company’s core operations. Operating Expenses (OpEx) represent the indirect costs incurred by a business to continue running its day-to-day operations.