Description
Costs that are directly related to a company’s commercial or operational activities are categorized as OPEX or operating expenses. These expenses are crucial for carrying out the company’s operations smoothly and profitably. Operating expenses are essential and mostly unavoidable for businesses.
Example
Examples of operating expenses include employee compensation, marketing expenses, travel costs, inventory, rent, taxes, etc.
Why it matters
Operating expenses are important to carry out business functions. However, companies must ensure that these do not exceed their total revenues, or else there will be no profits. Costs related to people, transportation, and travel are common operating expense areas that companies must examine to identify cost-saving opportunities.