What Are Administrative Expenses?

Administrative expenses are the costs a company incurs in order to run its business on a day-to-day basis. These expenses are necessary for the company to operate effectively and efficiently, but they do not directly generate revenue.

Examples of administrative expenses may include:

• Salaries and benefits for administrative staff
• Rent or lease payments for office space
• Utilities and other operational costs for the office
• Travel and entertainment expenses for business meetings
• Insurance costs for the company's operations
• Legal and accounting fees

These expenses are typically separate from the costs associated with producing and selling a company's products or services. For example, a manufacturing company would not include the cost of raw materials or labor as administrative expenses, as these costs are directly related to the production of the company's products.

When analyzing a company's financial performance, it is important to consider the amount and relative proportion of administrative expenses. A company with relatively high administrative expenses may be less efficient and profitable than a similar company with lower administrative expenses.

For example, if Company A and Company B are in the same industry and have similar revenue, but Company A has significantly higher administrative expenses, it may indicate that Company A is less efficient and less profitable than Company B.