OPEX
Operating Expenses
The costs of running the company day-to-day — salaries, marketing, rent, utilities.
What it is
OPEX (Operating Expenses) are all costs associated with a company's day-to-day operations. They are charged directly to the income statement in the period they are incurred — unlike CAPEX, which is capitalized on the balance sheet.
Major components of OPEX:
- →R&D (Research & Development) — investment in future products
- →S&M (Sales & Marketing) — costs of acquiring customers
- →G&A (General & Administrative) — management salaries, legal, accounting, office costs
OPEX vs. CAPEX: The same outlay can be classified differently. Software purchased as a license = OPEX. Software developed internally and capitalized = CAPEX. Companies have an incentive to shift OPEX to CAPEX (boosts near-term profit), so watch for consistency in accounting practices.
Why track it
Operating leverage arises when a company grows faster than its fixed OPEX — each incremental dollar of revenue brings disproportionately more profit. A declining OPEX/Revenue ratio alongside rising revenue is a strong signal of business scalability.
Conversely, rising OPEX/Revenue with stagnating revenue is a warning sign — the company is losing operating efficiency. This typically happens during aggressive hiring, expansion into new markets, or acquisition integration.
Compare OPEX/Revenue to the company's own history and to peers — is the company more or less efficient than competitors?
Real-world example
Microsoft FY2025:
- →R&D: ~$29B (11.7% of revenue)
- →S&M: ~$24B (9.7% of revenue)
- →G&A: ~$7B (2.8% of revenue)
- →Total OPEX (ex-COGS): ~$60B (24% of revenue)
EBITDA margin still above 40% — proof of strong operating leverage. Every additional dollar into Azure or Microsoft 365 generates ~60–70% margin, while fixed OPEX grows more slowly.