What are Operating Expenses (OpEx)?

Operating Expenses, often shortened to OpEx, are the costs a business incurs to run its day-to-day operations. Think of it as the money spent to keep the lights on and the business functioning, separate from the direct costs of making a product or providing a service. These expenses are typically recurring and are essential for generating revenue. They are found on a company's income statement and are deducted from gross profit to arrive at operating income. Managing OpEx effectively is key to a business's profitability and overall financial health.

Understanding Operating Expenses is vital because they directly impact a business's profitability. Lower OpEx generally means higher profits, assuming revenue stays the same. For buyers, analyzing OpEx helps them understand the true cost of running the business and identify areas for potential cost savings or inefficiencies. It also helps in valuing the business accurately, as high or uncontrolled OpEx can significantly reduce a business's attractiveness.