Explanation of Operating Expenses:

Also called Total Operating Expenses and listed on the Income Statement, the Operating Expenses are the combination of the individual expenses the company has recorded.  Expenses such as Research and Development, Selling and Administrative, Amortization of assets, and Lease Payments are often listed, but there may be many more. 

Importance of Operating Expenses:

Since businesses in separate industries end up having unique types of expenses, companies can choose how they list their expenses.  Each major expense needs to be watched closely, as small expenses one period can quickly increase by the next period and can sometimes be a future indicator of problems.  Operating Expenses also tend to follow sales, but if the percentage of Operating Expenses increase compared to sales, this is a clear sign more investigation needs to be done.

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