Operating activities are the daily activities of a company involved in producing and selling its product, generating revenues, as well as general administrative and maintenance activities. Key operating activities for a company include manufacturing, sales, advertising and marketing activities.
The operating income shown on a company's financial statements is the operating profit remaining after deducting operating expenses from operating revenues. There is typically an operating activities section of a company's statement of cash flows that shows inflows and outflows of cash resulting from a company's key operating activities.
Key Operating Revenues
The key operating activities that produce revenues for a company are manufacturing and selling its products or services. Sales activities can include selling the company's own in-house manufactured products or products supplied by other companies, as in the case of retailers. Companies that primarily sell services may or may not also sell products.
For example, a spa business, in addition to providing services such as massages, may also seek additional revenue income from the sale of health and beauty products.
Interest and dividend income, while part of overall operational cash flow, are not considered to be key operating activities since they are not part of a company's core business activities.
Key Operating Expenses
Expenses generated from key operating activities include manufacturing costs, as well as the expenses of advertising and marketing the company's products or services. Manufacturing costs include all the direct production costs included in cost of goods sold (COGS).
Operating costs related to advertising and marketing include the expenses of advertising the company and its products or services using various media outlets, whether through traditional or online platforms. In addition, marketing costs include such things as appearing at trade shows and participating in public events such as charity fundraisers.