Operating Expense

Well, simply put, operating expenses are the expenses it takes to operate a company. Yep. Insert duh here. But why would they be called out separate from any other expenses? Like what other expenses are there anyway that aren't…operating? Hm, we’ll noodle the notion.

Well, if you are running a drone making plant, your operating expenses are things like the cost of plastic molds for the drone itself, batteries, computer chips for the brains of the drone, computer chips to communicate wirelessly with the controller, copter blades, lights, packing material, abor to put all of this together.

And shipping containers. Don't forget shipping containers. The drones don't just fly to their customers. Oh. Wait. Well, they need pretty ribbons on them anyway. So all of the above are core operating expenses. They are part of what comprises the gross profits of the company - the revenues minus the costs to actually make the product.

But to fully operate the business, you need to include a ton of other things. Like, paying for insurance, rent for a building, you need lawyers because, well, you always need lawyers and secretaries, and other bureaucrats to uh, run things. And do stuff.

Added up, those operating expenses, when subtracted from revenues, give you operating profits, or pre-tax profits. There are other expenses, like capital expenses. That is, you spend $100 mil on a factory to stamp robots. That cash is spent immediately up front, but the factory lasts 20 years. So you take away 5 mil a year to depreciate the factory to zero after it's used up.

You might also have acquired patents, which are similarly written down in value - or amortized away - as their value slowly fades with time. So what’s left? What comes after Operating profits? Taxes. Dividends.

And a bunch of other crap. Like...if the company had invested in things that had to be written up or down, and other random stuff. But the key idea here is that operating expenses are more or less quote “everything” unquote that it takes to run the business except taxes and dividend obligations, which aren’t counted in this calculation.

So...now that you have a handle on what comprises operating expenses, you too can be a, uh…smooth operator.