Operating Cost

  

Categories: Company Management

What does it cost you to operate your business? If you breed wolves for a living, you have the cost of the land you're leasing. Fishing hooks and materials and bait. Labor from a few dozen workers. Vaccines. Maybe some leashes. A wolf condo. Not much else.

Together, those are your company's operating costs: the costs it incurs to do what it does.

Related or Semi-related Video

Finance: What are operating expenses?2 Views

00:00

Finance allah shmoop what are operating expenses Well simply put

00:07

operating expenses are the expenses it takes to operate a

00:12

business Yeah in sort of big fat dog here but

00:15

why would they be called out separate from any other

00:18

expenses You know manish thana like what other expenses are

00:23

there anyway that aren't operating All right Well we'll noodle

00:28

the notion here for a moment Noodling noodling Well if

00:31

you are running a drone making plant while your operating

00:34

expenses are things like the cost of plastic molds for

00:39

the drone itself batteries computer chips for the brains of

00:42

the drone computer chips to communicate wirelessly with the controller

00:47

copter blades lights packing material labour to put all this

00:51

together and then they're shipping containers Don't forget shipping containers

00:54

The drones don't just fly to the customer way need

00:58

pretty ribbons on them anyway Never mind on that part

01:01

so all of the above our core operating expenses they're

01:05

part of what comprises the gross profits of the company

01:09

The revenue minus the cost actually make the product but

01:13

to fully operate the business you need to include a

01:16

ton of other things like paying for insurance rent for

01:21

ah building You need lawyers because they always need lawyers

01:25

and and there's secretaries and other bureaucrats Teo you know

01:29

do stuff run things Yeah well added up those operating

01:33

expenses when subtracted from revenues while they give you operating

01:38

profits or crete acts profits And there are other expenses

01:42

like capital expenses That is you spend one hundred million

01:45

box on a factory teo stamp out drones or whatever

01:49

And that cash is spent immediately upfront but factory last

01:53

twenty years So well you know what do you do

01:55

Well yeah You take five million a year to straight

01:58

lined appreciate factory too Zero after it's used up Well

02:01

you might also have acquired patents which are similarly written

02:06

down in value or advertised away as their value slowly

02:10

fades with time like shmoop writers So what's left Well

02:14

what comes after operating profits Well taxes on dividends and

02:18

a bunch of other crap like you know if the

02:20

company had invested in things that had to be written

02:23

up or down and other branham stuff it's all out

02:27

there after operating expenses But a key idea here is

02:30

that operating expenses are more or less Quote everything unquote

02:35

That it takes to run the business except taxes in

02:38

dividend obligations which aren't counted in this calculation So now

02:42

that you have a handle on what comprises operating expenses

02:46

well you too can be a no smooth operator Shod

02:50

a member Ask your parents in oh no she's a 00:02:53.33 --> [endTime] smooth operator

Up Next

Finance: What are Margins?
212 Views

What are margins? Margin refers to the difference between the actual value of stock owned and the amount the investor borrows from their broker. In...

Finance: What are operating profits, net profits and gross profits?
63 Views

What are operating profits, net profits and gross profits? Profits for a company can be calculated several different ways depending on what metric...

Find other enlightening terms in Shmoop Finance Genius Bar(f)