Definition:

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

Examples

Examples of SG&A expenses include salaries of sales personnel, advertising costs, rent, utilities, office supplies, legal and accounting fees, and insurance.

Formula:

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

How to use the metric:

SG&A expenses are used to analyze a company's operating efficiency and cost management. By comparing SG&A expenses to total revenue, investors and analysts can assess how well a company is controlling its overhead costs relative to its sales.

Limitations:

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

Applies to:

SG&A expenses are applicable to most industries, particularly those with significant sales and administrative functions, such as retail, manufacturing, and services.

Doesn't apply to:

SG&A expenses may not be as relevant for industries with minimal overhead costs or where direct production costs dominate, such as certain extractive industries like mining or oil and gas, where the focus is more on cost of goods sold (COGS).

Summary:

SG&A expenses encompass the costs associated with selling products and managing a company. They are crucial for evaluating a company's operational efficiency and cost management. While useful across many industries, variations in classification and industry-specific factors can limit their comparability.