Loading the player...

What is 'Operating Revenue'

Operating revenue is revenue (sales) generated from a company's day-to-day business activities, which means revenue posted from selling the company’s products and services. A retailer, for example, produces revenue through inventory sales, and a doctor derives revenue from consulting with patients. Operating revenue is important for a business to remain viable, because these sales are sustainable from one year to the next.

BREAKING DOWN 'Operating Revenue'

The income statement formula is revenue minus expenses equals net income (profit), and operating profit is computed as operating revenue minus operating expenses incurred. When performing financial statement analysis, managers separate operating results from non-operating results, since operating revenue is based on the primary business activities of a company.

Differences Between Operating and Non-Operating Revenue

Non-operating revenue is inconsistent and not planned as a part of annual business operations. Assume, for example, that a clothing manufacturer sells a warehouse building with an original cost of $10 million for a sale price of $15 million. In this transaction, $15 million is non-operating revenue and the profit of $5 million is non-operating income to the manufacturer.

The income statement lists operating revenue and profit from clothing sales first, then it posts non-operating revenue and profit for the building sale. This type of presentation informs the financial statement reader that the warehouse sale is unusual and not a part of the manufacturer's primary business. The transaction is unusual and may not happen again for years. Another example of non-operating revenue is the proceeds received from the settlement of a lawsuit.

Factoring in Cash Flow

Non-operating revenue and income do not produce cash inflows that are consistent from one year to the next, which is another reason why the activity is separately identified in the income statement. For a company to fund company operations, the business must generate operating revenue. Firms that drive operating revenue can fund the business each month without the need to seek additional financing, and these companies can operate with a lower cash balance.

How Operating Revenue Impacts Stock Prices

For a successful company, operating revenue and income are the primary source of earnings per share (EPS); this ratio is a key statistic for evaluating a firm's stock price. EPS is defined as earnings available to common shareholders divided by common shares outstanding. A well-managed business can grow operating revenue and income by finding more customers and moving into new markets, which generate higher earnings. As EPS increases, many investors and analysts consider the stock to be more valuable and the stock price increases.

RELATED TERMS
  1. Non-Operating Asset

    Classes of assets that are not essential to the ongoing operations ...
  2. Non-Operating Expense

    An expense incurred by activities not relating to the core operations ...
  3. Operating Earnings

    Operating earnings are profit earned after subtracting from revenues ...
  4. Non-Operating Cash Flows

    Non-operating cash flows are inflows and outflows of cash that ...
  5. Pretax Operating Income - PTOI

    An accounting term that refers to the difference between a company's ...
  6. Operating Income

    The amount of profit realized from a business's operations after ...
Related Articles
  1. Investing

    Understanding the Income Statement

    The best way to analyze a company - and figure out if it's worth investing in - is to know how to dissect its income statement. Here's how to do it.
  2. Investing

    Analyzing Operating Margins

    Learn how to analyze operating margins and how to put this aspect of equity analysis to work.
  3. Investing

    Cash Flow Statement: Reviewing The Cash Flow From Operations

    Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods for calculating it.
  4. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
RELATED FAQS
  1. What does an income statement look like?

    Learn about the different parts of an income statement and how investors review them carefully to determine the health of ... Read Answer >>
  2. What is the difference between revenue and sales?

    In accounting terms, sales make up one component of a business's revenue. Some businesses refer to sales as operating revenue ... Read Answer >>
  3. Is operating profit the same as net income?

    Understand the difference between operating profit and net income, including how each type relates to the other and how both ... Read Answer >>
  4. Why does operating profit exclude interest revenues and expenses?

    Understand the purpose of examining a company's operating profit margin and why interest revenues and expenses are not included ... Read Answer >>
  5. What is the difference between revenue and profit?

    Revenue is the total amount of income generated by a company. Profit is the bottom line or net income after accounting for ... Read Answer >>
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center