Cost structure refers to the types and characteristics of the expenses incurred by a company. The structure of the business’s expenses, in terms of operating vs. non-operating, fixed vs. variable, cash vs. non-cash and recurring vs. non-recurring, has important implications on its earnings power and cash generation. Therefore, analyzing cost structure is an important step towards estimating the company’s and the stock’s intrinsic value. We’ll start by learning how expenses are recognized (similar to revenue recognition), and then go through the characteristics and the common expense items one by one. Finally, we’ll learn how to forecast cost into the future.
Key Takeaways:
- Expense Recognition
- Cost structure characteristics
- How to forecast cost