What is the importance of assessing the level & trend of operating expenses?

Question

I'm still trying to figure out why this is so important. Is there anything other than having a way of analyzing a business' net profit?

Answer 1

I think that you're right. It all comes down to the bottom line.

But you can't just analyze the revenue level and trend.

Expenses must be carefully looked at also. An example: If expenses are rising over time, that means that revenue must also rise over the same period if the business wants to just keep making the same profit (revenues would have to grow faster than the expenses growth if the company wants increasing net profit).

Also, I recall something from my Managerial Accounting class that noted that sometimes, in periods of prosperity, a company's expenses can really balloon unnecessarily - which is another reason to keep an eye on expenses - be it good times or bad.