You own a chain of retail boutiques specializing in organic, gourmet enemas. You own the buildings your stores operate in, making you a prime candidate for an opco/propco situation.
In the opco/propco structure, a company's interests get divided into two segments. There's a company that owns all the real estate...that firm is known as the property company, or "propco." Meanwhile, you've got a separate entity that runs the actual business. It's referred to generally as the operating company, or "opco."
By separating the businesses, you take advantage of different legal requirements and debt structures. The property company has all that real estate...collateral it can use to take on additional debt. You use that to lever up the propco...leaving the opco relatively debt free, meaning it has a strong credit rating and doesn't spend much of its revenues on debt service (though it does have to pay rent to the propco as part of the deal).
Meanwhile, since the propco only deals in real estate, it's potentially eligible to organize as a real estate investment trust, or REIT. That structure gives it a significant tax advantage when it comes to income distributions.
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Finance: What are operating expenses?2 Views
Finance allah shmoop what are operating expenses Well simply put
operating expenses are the expenses it takes to operate a
business Yeah in sort of big fat dog here but
why would they be called out separate from any other
expenses You know manish thana like what other expenses are
there anyway that aren't operating All right Well we'll noodle
the notion here for a moment Noodling noodling Well if
you are running a drone making plant while your operating
expenses are things like the cost of plastic molds for
the drone itself batteries computer chips for the brains of
the drone computer chips to communicate wirelessly with the controller
copter blades lights packing material labour to put all this
together and then they're shipping containers Don't forget shipping containers
The drones don't just fly to the customer way need
pretty ribbons on them anyway Never mind on that part
so all of the above our core operating expenses they're
part of what comprises the gross profits of the company
The revenue minus the cost actually make the product but
to fully operate the business you need to include a
ton of other things like paying for insurance rent for
ah building You need lawyers because they always need lawyers
and and there's secretaries and other bureaucrats Teo you know
do stuff run things Yeah well added up those operating
expenses when subtracted from revenues while they give you operating
profits or crete acts profits And there are other expenses
like capital expenses That is you spend one hundred million
box on a factory teo stamp out drones or whatever
And that cash is spent immediately upfront but factory last
twenty years So well you know what do you do
Well yeah You take five million a year to straight
lined appreciate factory too Zero after it's used up Well
you might also have acquired patents which are similarly written
down in value or advertised away as their value slowly
fades with time like shmoop writers So what's left Well
what comes after operating profits Well taxes on dividends and
a bunch of other crap like you know if the
company had invested in things that had to be written
up or down and other branham stuff it's all out
there after operating expenses But a key idea here is
that operating expenses are more or less Quote everything unquote
That it takes to run the business except taxes in
dividend obligations which aren't counted in this calculation So now
that you have a handle on what comprises operating expenses
well you too can be a no smooth operator Shod
a member Ask your parents in oh no she's a 00:02:53.33 --> [endTime] smooth operator
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