OPEX

OPEX, short for operating expenses or operating expenditure, refers to the ongoing costs a business incurs through its normal operations. These expenses are distinct from capital expenditures (CAPEX), which are investments in long-term assets. OPEX covers the day-to-day costs required to run the company and deliver goods or services.

Typical components include cost of goods sold, payroll, rent, utilities, marketing, software licenses, insurance, travel, and maintenance. Depending on the accounting presentation, depreciation and amortization may be shown as part of operating expenses or listed separately as non-cash charges linked to capital assets.

Accounting treatment: OPEX is expensed in the period it is incurred, reducing operating income and net income on the income statement. For cash flow analysis, the cash effect corresponds to actual payments; depreciation and amortization are non-cash charges and are added back when converting net income to cash flow from operations.

CAPEX versus OPEX: CAPEX refers to funds used to acquire or upgrade long-lived assets and is capitalized and depreciated over time, affecting taxes and cash flows over multiple periods. OPEX is generally deductible in the year incurred and reduces taxable income in that period, while CAPEX yields tax shields through depreciation.

Business implications: Managing OPEX is central to profitability and cash flow planning. Startups often monitor OPEX to extend runway, while mature firms seek cost efficiency and scalable OPEX models, such as cloud-based services, which are expensed rather than capitalized.