Selling, General and Administrative Expenses​

Selling, General and Administrative (SG&A) Expenses

SG&A includes all non-production expenses incurred by the company in any given period. This includes costs such as rent, advertising expense, accounting and litigation expense, travel, meals, management salary. On occasion, this section may also include depreciation expense. In an income statement, gross profit less SG&A (and depreciation expense) results in the operating profit, also known as the earnings before interest and tax (EBIT).

Some firms classify both depreciation expense and interest expense under SG&A. If this is true, then gross profit less SG&A results in pre-tax profit, also known as earnings before taxes (EBT).

Forecasting SG&A

SG&A can be forecasted through any of the following methods: as a percentage of sales revenue, periodic growth over last period, and fixed dollar value. If SG&A is a consolidated, one-line item, the analyst must use discretion to select one of these (or other) methods.

Sometimes, SG&A will be a section, with items broken out in individual lines. If this is the case, different line items will have differing forecast methods. For example, rent most likely will be a fixed dollar value every period. Advertising expense, on the other hand, will vary with the strategic decisions a company makes in the given period.