What Is Operating Revenue?
Let me explain operating revenue directly: it's the revenue your business generates from its primary activities. For instance, if you're a retailer, this comes from selling merchandise; if you're a physician, it's from providing medical services. What counts as operating revenue depends on your business or industry, so you need to identify it based on your core operations.
Key Takeaways
- Operating revenue is generated by a company's primary business activities.
- Operating revenue can be compared year-over-year to assess the health of a company and its operations.
- Operating revenue should be separated out from non-operating revenue that occurs from infrequent, unusual, or one-time events.
Understanding Operating Revenue
You should distinguish operating revenue from total revenue because it gives you key insights into the productivity and profitability of a company's main operations. Even though it's listed separately on financial statements, some companies might try to hide drops in operating revenue by mixing it with non-operating sources. That's why identifying revenue sources is essential for you to evaluate a firm's overall health and operations accurately.
Operating Revenue vs. Non-Operating Revenue
Non-operating revenue comes from activities outside your company's core operations, and it's usually infrequent or unusual. Think of examples like interest income, gains from selling assets, lawsuit proceeds, or other unrelated sources. For a private university, tuition is operating revenue, but alumni gifts are non-operating since they're not expected or part of regular operations. On the income statement, you'd see operating revenue and profit first, followed by non-operating items like donations. This setup tells you that such gifts aren't a standard part of the business, and non-operating revenue can vary wildly year to year.
Special Considerations
When it comes to cash flow, non-operating revenue doesn't provide consistent inflows year after year, which is why it's separated on the income statement. To fund operations, your company must generate operating revenue; businesses that do this well can sustain themselves without extra financing and keep lower cash balances. Take a company selling a building for a gain—that's non-operating revenue for that year, not something you can count on regularly, so don't use it to judge ongoing operational success.
For stock prices, operating revenue and income are the main drivers of earnings per share (EPS), a critical metric for valuing a firm's stock. EPS is earnings available to common shareholders divided by outstanding shares. A well-run business grows these by attracting more customers and entering new markets, boosting EPS and making the stock more valuable to investors and analysts.
Other articles for you
Jean-Baptiste Say was a French classical liberal economist renowned for his Law of Markets, which posits that production generates demand.
Real options give company managers flexible choices to adapt business projects involving tangible assets based on changing conditions.
JIBAR is the key benchmark for short-term interest rates in South Africa's money market.
A fixed-rate mortgage is a home loan with a constant interest rate and predictable monthly payments throughout the loan term.
Section 1231 provides favorable tax treatment for gains on business property held over a year, taxing them as capital gains while allowing ordinary loss deductions.
Medicaid is a joint federal and state program offering health coverage to low-income individuals in the US.
A total bond fund is an investment vehicle that replicates a broad bond market index to provide diversified exposure to various bonds.
Substitutes are products or services that can replace others based on consumer preferences, influencing demand and market competition.
Enterprise value (EV) is a comprehensive metric that calculates a company's total value by including market capitalization, debt, and subtracting cash.
Errors and omissions (E&O) insurance protects businesses from claims related to professional mistakes or negligence.