Total operating expenses

Total operating expenses is the sum of the costs of running the business during the period (a quarter or a full year) other than the direct cost of the products sold, typically combining selling general & administrative expenses, research & development, and other operating costs. Some income statements also include cost of goods sold in a total expenses line, so the exact composition depends on how a company structures its reporting. It is worth checking the footnotes before comparing across companies.

Subtracting total operating expenses from gross profit gives you operating profit, making this line the bridge between gross profit and the core earnings of the business.

Its significance is less as a standalone figure and more as a control total. Analysts use it to assess operating leverage, the degree to which revenue growth outpaces expense growth. A business with strong operating leverage sees total operating expenses grow slowly relative to revenue, so each additional dollar of sales drops more efficiently to operating profit.