Operating expenses (OPEX)

Operating expenses (OPEX) encompass all costs incurred in running a company's core business: cost of goods sold, personnel costs, occupancy, depreciation, marketing, IT and general administration. They are the primary driver of EBITDA margin and the focus of earnings quality analysis in financial due diligence. In financial analysis, OPEX refers more specifically to the recurring, cash-based operational costs of the business, assessed after separating non-cash charges (depreciation, amortisation) which sit in the broader operating expense line but are excluded from EBITDA. Understanding the composition of OPEX (fixed versus variable, recurring versus exceptional) is essential for building accurate margin projections in DCF models, and normalisation of operating expenses (removing non-recurring items, above-market related party transactions and accounting policy anomalies) is the central objective of every quality of earnings review. Their multi-year trend reveals the company's cost discipline and competitive dynamics.

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Example: a Swiss manufacturer presents total operating costs of CHF 15.0 million including CHF 1.2 million depreciation and CHF 800,000 non-recurring restructuring charges. Normalised recurring OPEX is CHF 13.0 million, excluding non-cash depreciation (add-back to EBITDA) and non-recurring items; applied to projected revenues, it produces a defensible normalised EBITDA margin of 18.7% versus 14.2% reported. Conversely, a Swiss B2B services company shows operating expenses growing from CHF 7.7 million to CHF 9.5 million (+23%) over 3 years against revenue growth of only 15%: this margin scissors, driven by a 35% increase in personnel costs and new office lease costs, includes CHF 600,000 of structural and permanent cost increases, reducing normalised EBITDA and the valuation accordingly.

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Hectelion decomposes operating expenses into recurring cash OPEX and non-cash or non-recurring items, and analyses their multi-year trend as a primary operational quality indicator, in every quality of earnings review and valuation engagement.