Key Elements in Financial Analysis: Expenses
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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Hello everyone, how are you today?
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Are you ready to continue the financial analysis series?
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Right, today I will continue the discussion on the last key element in financial analysis.
In Part 1, I briefly explained the 5 key elements.
In Parts 2 and 3, I explained in detail the elements of assets and liabilities.
In Parts 4 and 5, I explained in detail the elements of equity and revenue.
For this series, I want to explain in detail the last element, which is expenses.
Expenses are the costs incurred by a company for operations in generating sales.
Simply put, they are all the expenditures of a company.
Also known as ''money going out''.
This refers to the cost of producing the products or services offered by a company.
These costs include the cost of materials and labour used in producing the product or service.
What happens if this cost does not exist?
If this cost is absent, then the company cannot sell the goods or services.
How can that happen?
For example, Mahersaham sells a starterpack product and the customer pays to receive a USB pendrive.
Inventory = USB pendrive
To deliver it to the customer, the following are needed:
If either of the above is missing, the product will definitely not reach the customer, and consequently the product cannot be sold.
This cost differs from the cost of producing products or services.
It is the cost for:
Interest expense is the cost borne by a company for borrowed funds.
According to investopedia, tax expense is a liability to the federal or state government within a specific period, usually one year.
The expenses element in financial analysis encompasses COGS, Operating Expenses, Interest Expense, and Tax Expenses. Understanding each of these components is important to assess how efficiently a company manages its operational costs.
COGS (Cost of Goods Sold) is the direct cost involved in producing a company''s products or services. It includes the cost of raw materials, direct labour, and production costs directly related to the product.
Operating Expenses are the daily operational costs of a company that are not directly related to product production, such as building rent, utility bills, employee salaries, and advertising. Meanwhile, COGS is the direct cost of producing a product.
Interest Expense shows how much cost a company bears for its borrowed debt. A company with high Interest Expense may have a large debt burden, which can affect net profit.
Compare the ratio of expenses to the company''s revenue from one period to another. A company that successfully controls and reduces this ratio demonstrates better management efficiency.
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