Definition:

Selling, General, Administrative & Other Expense (SG&A) refers to the combined costs of operating a business that are not directly tied to the production of goods or services. These expenses include costs related to selling products, managing the company, and other miscellaneous expenses.

Examples

Examples of SG&A expenses include salaries of sales and administrative staff, advertising and marketing costs, rent, utilities, office supplies, legal and accounting fees, and travel expenses.

Formula:

SG&A = Selling Expenses + General Expenses + Administrative Expenses + Other Expenses

How to use the metric:

SG&A is used to assess the operational efficiency of a company. By analyzing SG&A, businesses can identify areas where they can cut costs or improve efficiency. It is also used in calculating operating income by subtracting SG&A from gross profit.

Limitations:

SG&A does not provide insight into the direct costs of production, which can be crucial for manufacturing businesses. It can also vary significantly between companies and industries, making it difficult to compare across different sectors.

Applies to:

SG&A is applicable to most industries, especially those with significant sales, marketing, and administrative functions, such as retail, consumer goods, and service industries.

Doesn't apply to:

SG&A may not be as relevant for industries with minimal administrative and sales functions, such as certain manufacturing sectors where direct production costs are more significant.

Summary:

SG&A is a key financial metric that encompasses the costs associated with selling products, managing a company, and other operational expenses. It is useful for evaluating a company's operational efficiency but has limitations in comparing across different industries.