Overhead costs (selling, general, and administrative expenses) as a percentage of revenue. Below 30% is generally efficient. Buffett notes that companies with consistently low SGA ratios tend to have durable competitive advantages.
Formula
Description
Measures the overhead cost burden relative to revenue. Lower ratios indicate better cost control and operational efficiency. Warren Buffett has noted that companies with consistently low SGA ratios tend to have durable competitive advantages.
Interpretation
Below 30% is generally efficient. Declining SGA/Revenue over time indicates improving operating leverage. Very low ratios (below 10%) are common in businesses with network effects or economies of scale. Rising SGA/Revenue without corresponding revenue growth is concerning.
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