Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Guide 7 of 34 · The Income Statement
Is R&D an Operating Expense? (Apple Example)
An expense you want to see rising.
Research and development is a cost on the income statement, just like rent or advertising. But for a technology company, a growing R&D line is often a healthy sign, because it is spending on the next product. Apple’s climbed from $21.9 billion to $34.6 billion in four years.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
Is Research and Development an Operating Expense?
Textbook Definition
Yes. Under U.S. accounting rules, most research and development costs are expensed as incurred and reported within operating expenses, alongside selling, general, and administrative expenses, below gross profit.
In Plain English
R&D is money spent finding and building new products. It shows up as a cost in the year it is spent, in the operating expenses section. Operating expenses are the costs of running the company that are not part of making each product.
Operating Expenses (Apple)
SG&A + R&D
Apple, fiscal 2025: $27.6B + $34.6B = $62.2B
Operating expenses come off gross profit. What is left is operating income, the profit from running the business itself.
One Real Company
Apple’s Operating Expenses, 2021 to 2025
R&D grew every year. SG&A crept up slowly. Together they pushed operating expenses from 12.0% to 14.9% of sales.
| Line | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Research and development | 34,550 | 31,370 | 29,915 | 26,251 | 21,914 |
| R&D growth | 10.1% | 4.9% | 14.0% | 19.8% | n/a |
| SG&A | 27,601 | 26,097 | 24,932 | 25,094 | 21,973 |
| SG&A as % of revenue | 6.6% | 6.7% | 6.5% | 6.4% | 6.0% |
| Total operating expenses | 62,151 | 57,467 | 54,847 | 51,345 | 43,887 |
| Operating expenses as % of revenue | 14.9% | 14.7% | 14.3% | 13.0% | 12.0% |
Source: Apple Form 10-K filings as analyzed in the book. $ millions.
The Method
How to Read Operating Expenses in 5 Steps
Split the section into its parts.
SG&A is overhead: advertising, offices, salaries not tied to production. R&D is new products. Read them separately.
Turn each into a percent of sales.
Dollars always grow with a growing company. The percent shows whether costs are outrunning sales.
Judge SG&A on discipline.
SG&A is directly controlled by management. Rising faster than sales can mean waste, or a company getting ready to grow.
Judge R&D on investment.
For a tech company, rising R&D is usually healthy. Customers’ tastes change, and the company has to keep up.
Check what happened to margins.
Rising expenses are fine if operating margin holds. Apple’s did. The operating income guide shows the result.
Waste or Investment?
Apple’s operating expenses rose from 12.0% to 14.9% of sales, the opposite of its trend in earlier years. The book does not call it a red flag, because the growth went mostly into research, not overhead, and profit margins held up. The direction still deserves an honest mention. That is how an analyst thinks.
Compare It
Apple vs. Microsoft: Same Dollars, Different Share
| Latest fiscal year | Apple | Microsoft |
|---|---|---|
| R&D spending | about $35B | about $32B |
| R&D as % of sales | about 8% | 11 to 12% |
| Revenue | $416B | $282B |
Microsoft’s fiscal year ends in June, Apple’s in September. Figures from the book.
Nearly the same dollars on research. But Microsoft’s sales are smaller, so it plows a bigger slice of every sales dollar back into new products.
Why It Matters
Why Do Analysts Like Rising R&D?
Because the alternative is worse. A company that stops investing in new products can look more profitable for a few years, then fall behind. Cutting research is one of the fastest ways to make this year’s numbers look good at the expense of the future.
That is why the book grades Apple’s rising R&D an A while giving its total operating expenses a B. The research line is doing its job. The overall cost share is creeping up, and that is worth watching even when the reason is good.
Watch for the opposite pattern too. If a tech company’s sales keep climbing while its research budget flattens or falls, ask why. Sometimes it is a mature product line that needs less investment. Sometimes it is a company borrowing from its future to hit this year’s profit target. The income statement shows you the numbers. The notes and management’s discussion usually tell you which story it is.
The rule changes by industry. A grocery chain does almost no research. A software or device maker lives on it. Always ask what kind of company you are reading before you decide whether a cost is too high.
Beginner Traps
R&D Mistakes Beginners Make
- Treating every rising expense as bad news.
- Lumping R&D and SG&A together without reading each one.
- Judging expenses in dollars instead of percent of sales.
- Expecting a grocer to spend like a tech company.
- Ignoring that cutting R&D can inflate short-term profit.
- Forgetting to check margins after costs rise.
How the Book Grades Apple’s Operating Costs
From the Book
The Short Version
Income Statement · Research and Development
Stay Relevant
If a company wants to stay relevant, invest in innovation. R&D is the starting point for this process.
R&D, SG&A, and every other line, five years of Apple, graded. It is all in the book.
Get the Book on Amazon →Watching Your Overhead?
Small businesses fight the same battle with overhead. See how fixed costs eat profit in gross margin vs. net margin, and plan them with a small business budget.
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R&D and Operating Expense Questions
Is research and development an operating expense?
What is the difference between SG&A and R&D?
How much does Apple spend on research and development?
Keep Going
Related Guides
Operating expenses sit between gross profit and operating income. See the full guide.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice, and nothing here is a recommendation to buy or sell any security. Apple and Microsoft figures come from their public filings as analyzed in the book. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.