SG&A

Selling, General & Administrative Expenses

Selling, General & Administrative (SG&A) Expense

SG&A includes all non-production expenses incurred by the company in any given period. This includes expenses such as rent, advertising, marketing, accounting and litigation, travel, meals, management salaries, bonuses, and more. On occasion, it may also include depreciation expense, depending on what it’s related to.

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).

 

SG&A

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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).

 

Selling Expense

The selling component this expense line is related to be direct and indirect costs of generating revenue (from selling products or services).

Direct expenses are those incurred at the exact point-of-sale for a product or service.  Examples of direct selling expenses include transactions costs and commissions paid on a sale.

Indirect selling expenses are those that are incurred either before or after the sale is made and examples include salaries, benefits, and wages for salespeople, travel, and accommodation expenses.

 

General & Administrative (G&A) Expense

G&A expenses are the overhead costs of a business, many of which are fixed or semi-fixed. These costs don’t relate directly selling products or service, but rather to the general ongoing operation of the business.

The most common examples are rent, insurance, utilities, supplies, and expenses related to head office management such as salaries of executives, admin staff, and non-salespeople.

 

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Forecasting SG&A

SG&A can be forecasted through any of the following methods: as a percentage of sales revenue, a growth rate over the 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 to account for all the various expenses baked into that one line item.

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.

 

Additional resources

Thank you for reading this guide to SG&A. CFI’s mission is to help you advance your career as a financial analyst.  To achieve that mission, we highly recommend these additional resources: