Definition:

General & Administrative Expense (G&A) refers to the overhead costs associated with the general operation of a business that are not directly tied to a specific function such as manufacturing, production, or sales. These expenses include costs related to the overall administration and management of a company.

Examples:

Examples of G&A expenses include salaries of executive and administrative staff, office supplies, utilities, rent, insurance, legal and accounting fees, and depreciation on office equipment.

Formula:

G&A Expenses = Total Operating Expenses - (Cost of Goods Sold + Selling Expenses)

How to use the metric:

G&A expenses are used to assess the efficiency of a company's administrative functions. By analyzing these expenses, businesses can identify areas where they might reduce costs without affecting their core operations. It is also used in calculating operating income by subtracting it from gross profit.

Limitations:

G&A expenses can vary significantly between companies and industries, making it difficult to compare across different sectors. Additionally, some companies may categorize expenses differently, leading to inconsistencies in reporting.

Applies to:

G&A expenses apply to all industries as every business incurs some level of administrative and general costs. However, they are particularly scrutinized in industries with high overhead costs, such as technology, finance, and healthcare.

Doesn't apply to:

There are no industries where G&A expenses do not apply, but in industries with minimal overhead, such as certain small-scale service businesses, these expenses might be less significant in financial analysis.

Summary:

General & Administrative Expenses are crucial for understanding the overhead costs associated with running a business. They provide insight into the efficiency of a company's administrative functions and are a key component in calculating operating income. While applicable across all industries, the significance and categorization of these expenses can vary, posing challenges in comparison and analysis.