How Warren Buffet Looks at the Operating Expenses: Selling, General and Administrative Expenses (SG&A)

Selling, General and Administrative Expenses (SG&A) are under Operating Expenses in Income Statement. SG&A includes distribution, advertising and marketing expenses, rent and salaries, legal fees, and commissions.
The gross profit on SG&A expenses percentage value is used to compare companies within the same industry.
The gross profit on SG&A expenses percentage is relatively large for companies that do not have a competitive advantage. Therefore, if a company cannot cut its SG&A costs, it starts to eat up its profit.
If the gross profit on SG&A expenses percentage is under 30%, it is fantastic.

However, this does not mean that there could not be companies with a gross profit SG&A expenses percentage above 30% and do not have a competitive advantage. An excellent example is Coca-Cola, whose ratio has stayed above 50% since 1990 and still has a competitive advantage.

Let's compare two companies, INTEL and NVIDIA, using the percentage of gross profit on SG&A expenses.

Below you can see NVIDIA's chart:

NVIDIA has been continuously decreasing its SG&A expenses relative to its profit. In the last year (2022), its ratio was realized at almost 16 %. NVIDIA's SG&A to gross profit has been below 22% over the previous ten years.

Now let's look at INTEL's:

INTEL's SG&A to gross profit value has been below 26% during the last ten years. Between 2012 and 2020, the ratio had a downtrend. However, after 2020 it dramatically increased and jumped 15% to almost 26%.

Looking only at Gross Profit on SG&A Expenses ratio INVIDIA surprasses INTEL.

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