What is SG&A?

As part of its Q financial reporting, Apple reported $12.809 billion of operating expenses for the quarter. Of this, $6.797 billion was research and development, while $6.012 billion was selling, general, and administrative. Although the company does state that increases to SG&A from prior periods relates to headcount, advertising, and professional services, there is little more transparency beyond these notes. There are several subtle differences between SG&A expenses and operating expenses. Larger companies often separate these types of costs into smaller, specific SG&A categories as this is often easier for companies to track and monitor costs in these groups.

• SG&A can be calculated for any period (i.e. any month, quarter, or year).
• The selling, general, and administrative expenses (SG&A) category includes all of the overhead costs of doing business.
• They might have more competition, but they can more easily survive painful declines in revenue and cash flow.
• Capital Expenses expenses that are capital in nature or required under GAAP to be capitalized.
• These costs aren’t normally related to any specific function or department within the company.
• The SG&A ratio is simply the relationship between SG&A and revenue – i.e. the expense expressed as a percentage of total sales.

SG&A reflects the non-production, everyday expenses of running a business, such as costs to promote, sell, and deliver its products and services, as well as rent, salaries and advertising and marketing. For many companies, managing SG&A is key to controlling costs and sustaining profitability. Business accounting software can help accurately and efficiently track your SG&A and other expenses and help you improve your company’s financial health. General and Administrative (G&A) expenses are the day-to-day costs a business must pay to operate, whether or not it manufactures products or generates revenue. Typical G&A expenses include rent, utilities, insurance payments, and wages and salaries for administrative and management staff other than salespeople. Other costs may include ongoing information technology infrastructure costs, accounting and legal costs, human resources services and the purchase or rental of equipment that’s not used for manufacturing or sales.

The Limitations of SG&A

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For companies implementing cost-cutting initiatives, the first area they look at tends to be SG&A as opposed to COGS. Both tax professionals help with tax planning and advising clients in complicated tax situations, but there are some key differences. Here’s how you can effectively protect your business by selecting the correct tax professional for the job. Getting tax return and payment filing done on time is easier when you know what to expect and when they are due. You may have noticed that independent contractor payments are now reported on the tax form 1099-NEC rather than the 1099-MISC.

Selling, general and administrative expense definition

It can also help you monitor your ratio over time, indicating when costs need to be cut and sales need to be increased. When companies undergo mergers, SG&A is the first place they look to reduce redundancies. The combination of two companies results in many redundant operations and employees. By looking at the SG&A of each company, duplicated employees and positions can be identified and cut. Whereas SG&A primarily represents indirect costs unrelated to the core production of revenue, COGS are directly related to revenue generation. SG&A, or “selling, general & administrative” describes the expenses incurred by a company not directly tied to generating revenue.

The selling component of this expense line is related to the direct and indirect costs of generating revenue . A company’s management will try to grow revenue while simultaneously keeping operating expenses under control. Operating expenses, or OPEX for short, are the costs involved in running the day-to-day operations of a company; they typically make up the majority of a company’s expenses.

Selling, General & Administrative (SG&A) Expense

The details of how sg&as are calculated vary widely from company to company, so YCharts recommends looking at the annual report (10-k) an investor is interested in dissecting this number further. Customer billing costs would be allocated according to the number of invoices or invoice lines for each division. Payroll costs would be charged based on the number of employees in each division. Warehousing costs could be allocated to each product line by counting the number of bays used to store each product. Percentage rates of space utilization could then be calculated by product line. Generally speaking, the lower the SG&A ratio, the better – but the average benchmark varies significantly based on industry. For example, let’s say that we have a company with $6 million in SG&A and $24 million in total revenue.

• Some firms classify both depreciation expense and interest expense under SG&A.
• This line item includes nearly all business costs not directly attributable to making a product or performing a service.
• He would incur no additional selling costs because his salespeople could easily sell the comb line when calling on their sunglasses accounts.
• COGS includes direct labor, direct materials or raw materials, and overhead costs for the production facility.
• Dues paid for memberships to professional organizations and subscriptions to trade magazines and associations are SG&A costs.
• SG&A expense ratios vary widely by industry and should therefore only be used in comparison with like industries.