What is Overhead?
Overhead refers to the ongoing operating expenses necessary to running a business, but are not attributed to a specific business activity. Also referred to as "indirect costs."
How does Overhead work?
Generally, overhead expenses include expenses that do not directly generate revenues, such as labor and materials, but are needed to maintain the business operations. Overhead expenses include expenses such as accounting, advertising, depreciation, insurance, interest, legal, rent, repairs, office supplies, taxes, information and communications, utilities, research and development, customer relations and service, and travel. These overhead expenses are listed on the company's income statement.
Why does Overhead matter?
Overhead costs are considered fixed costs, that is, they do not rise or fall directly with the cost of goods sold. Overhead costs are important to monitor and control. Since they are not directly related to revenues, they can become a larger share of the total expenses and burden a company, soaking up net income and profits.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
When aviator, film producer and engineer Howard Hughes died in 1976, no will was found. Suddenly, a gas station attendant named Melvin Dummar arrived on the scene waving a handwritten will....Read More →
It's never fun to think about death -- especially your own. But we all die, and when we do, we want our loved ones to benefit from our legacy. Yet it's scary to think that...Read More →
In the last piece in this series, we discussed what you need to know to get started analyzing companies. Yet for many investors, it's the more advanced techniques that prove tricky to master....Read More →