What is not included in SG&A?
When analyzing a company's financial statements, one of the key metrics that investors and analysts often look at is the SG&A expenses. SG&A stands for Selling, General, and Administrative expenses, and it represents the operating expenses that are not directly related to the production of goods or services. While SG&A expenses are crucial for understanding a company's overall financial health, it is equally important to understand what is not included in SG&A expenses. In this article, we will delve into some of the items that are typically excluded from SG&A expenses and why they are important to consider.
One of the main items that are not included in SG&A expenses is the cost of goods sold (COGS). COGS includes all the direct costs that are associated with the production of goods or services, such as raw materials, labor, and manufacturing overhead. Since SG&A expenses are meant to capture the overhead costs that are not directly attributable to production, COGS is typically excluded from SG&A expenses. By separating COGS from SG&A expenses, investors can get a clearer picture of a company's profitability and operating efficiency.
Another item that is typically not included in SG&A expenses is interest expenses. Interest expenses arise from the company's debt obligations, such as loans or bonds, and are considered part of the company's financing activities rather than its operating activities. By excluding interest expenses from SG&A expenses, investors can focus on the core operating expenses of the company without being impacted by the financing decisions made by the management.
Additionally, income taxes are not included in SG&A expenses. Income taxes are a mandatory expense that companies have to pay based on their taxable income. Since income taxes are levied by the government and are not considered a part of the company's operating activities, they are not included in SG&A expenses. By excluding income taxes, investors can focus on the core operating performance of the company without being influenced by the tax implications.
Furthermore, one-time charges or extraordinary expenses are also typically excluded from SG&A expenses. One-time charges can include expenses such as restructuring costs, asset impairments, or legal settlements that are not expected to occur on a regular basis. By excluding these one-time charges from SG&A expenses, investors can get a better sense of the company's ongoing operating expenses and profitability.
In conclusion, understanding what is not included in SG&A expenses is crucial for investors and analysts when analyzing a company's financial statements. By excluding items such as COGS, interest expenses, income taxes, and one-time charges from SG&A expenses, investors can get a clearer picture of a company's core operating performance and profitability. It is important to consider these exclusions when evaluating a company's financial health and making investment decisions.
Comments (45)