Operating Expenses (Opex)

Operating expenses are the ongoing costs of running the business, such as personnel, rent, marketing, IT and administration. They need to be separated first from cost of goods sold, which relates directly to what is delivered: revenue minus COGS gives gross profit, and gross profit minus opex gives operating profit. Second, they must be distinguished from capital expenditure, since opex hits the period's result in full while capex is capitalised and only affects profit through depreciation over its useful life.

That boundary is a specific check in financial due diligence, because shifting opex into capex flatters EBITDA without changing cash outflow at all. With software, cloud contracts and internally developed assets the line is often genuinely unclear in practice, because qualifying development costs may be capitalised under German GAAP, while IFRS require capitalisation once the relevant conditions are met. Research costs, by contrast, remain an expense. Buyers therefore need to understand which development spending immediately reduces earnings and which is initially recognised as an asset. A breakdown by function is also informative for analysis, because sales, research and administration respond differently to growth: selling costs rise with revenue, while administrative costs are largely fixed and improve the margin as volume grows.

In practice the split between operating expenses and cost of sales is a major driver of reported gross margin and is often inconsistent across companies. Software vendors, for instance, allocate customer success, hosting and technical support costs differently, which makes gross margin comparisons unusable without reading the notes. A transaction therefore requires a comparable cost base. Recurring costs, one-off charges and additional spending required for planned growth should be separated. A short-term cut in sales or product development can improve earnings while weakening future earning power. Planning should therefore identify which costs can be removed sustainably without damaging revenue, customer retention or product quality.