As investors, we are always mindful of SGA expenses. SGA is abbreviated for Selling, General, and Administrative categories on a company’s income statement. SGA expenses consist of payroll costs, management salaries, and bonuses, legal fees, commissions, advertising, travel costs, etc. (all from the companies gross profit). Though financial statements are often overlooked by the average speculator, we are always looking for consistent SGA percentages (these expenses can lead the company into terrible debt if not managed properly).
Example: Coca-Cola usually has a consistent SGA expense of 59% and Moody’s has an SGA expense of 25%. Whereas, Ford has a track record of spending from 89% to 780%!
Investors and business moguls, such as John Bogle and Warren Buffet, keep away from high/fluctuating SGA expenses. If poorly managed, these expenses will lead to bankruptcy (not including other expenses that are needed for the company to survive) and that is the last place we want to place our $10,000 investment! Contrast and compare with other companies, and consider steering away from SGA expenses close to 100% of the gross profit. Investors are looking for a reliable, profitable company and if the business is not committed to their promises and calculated projections, we would rather place our investments elsewhere.