Sales, General, & Administrative (SG&A) Defined

What are Sales, General, & Administrative (SG&A)?  These are the direct costs for running a corporation and the breakdown of these individual costs.  Sales, General, & Administrative costs are exactly as they sound.

SG&A is found within the operating costs section of a company’s financial statements. This is also included with Depreciation & Amortization as well as Research & Development within total operating costs.  Deducting total operating costs from gross profits leads to operating profits and is a factor in determining operating efficiencies.

Sales

The Sales costs have to do with the marketing of the products by the company.  Any expense that deals with the market and sales of the products are accumulated in this section.  A company could have a lot of outsourced elements to selling a product and that would be listed in this section of the Total Operating Costs.

General

For General, costs here are tend to be incidental costs that are associated with running the business.  These costs could be equipment for running the corporate back offices, special meetings for the company functions, and other costs that are not specific in either creating the product or running the business.

Administrative

These costs, Administrative costs, are costs that are related to the administration of the company such as the CEO salary, or salaries for Human Resources, and other areas for the firm.

Comparing SG&A to Revenue

There are useful metrics to determine how efficient a company is from the perspective of SG&A.  An analyst could break out these metrics and divide SG&A over top of total revenue to determine what operating efficiencies are for the company itself.  By doing this, an analyst could compare one sized company versus another to see how competitive and efficient a company is from the perspective of total revenue and operating costs.

Understanding how to use these metrics will go far in showing an individual how to invest in stocks.  This section is covered, along with ratios in the Value Investing Video Course.

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