StockSignal
Selling, general and administrative expenses include sales, marketing, administrative staff and overhead. These costs support the business but are not directly tied to production.
How it relates
Gross ProfitGross profit is revenue minus the cost of goods sold. It shows how much the company earns from its products or services before paying operating expenses, interest and taxes.−Research & DevelopmentResearch and development expenses represent money spent on developing new products, technologies or improvements. High R&D can support future growth but reduces current profit.−Selling, General & Administrative−Other Operating ExpensesOther operating expenses include smaller or miscellaneous costs related to running the business that don't fall into standard categories. They reduce operating income.=Operating IncomeOperating income is the profit the company makes from its normal business operations after paying operating expenses. It shows the performance of the core business before interest and taxes.
Selling, general and administrative expenses include sales, marketing, administrative staff and overhead. These costs support the business but are not directly tied to production.
Components of SG&A:
- Selling expenses: Sales team salaries, commissions, advertising, marketing
- General expenses: Executive compensation, legal, accounting, insurance
- Administrative expenses: Office rent, utilities, support staff, IT systems
Why SG&A matters:
- Cost control: SG&A as percentage of revenue indicates operational efficiency
- Scalability: Fixed SG&A costs can provide leverage as revenue grows
- Investment vs. expense: Sales and marketing spending can drive future growth
- Operating leverage: Companies with high SG&A have more profit sensitivity to revenue changes
Analysis approach:
- SG&A ratio: Compare SG&A as percentage of revenue to peers and over time
- Trend analysis: Rising SG&A ratio may indicate loss of efficiency
- Growth investments: Distinguish between cost inefficiency and deliberate growth spending
- Restructuring: SG&A cuts often feature in turnaround plans
Companies with high gross margins but low operating margins typically have elevated SG&A relative to revenue. Understanding the composition helps identify opportunities for improvement.