Operating Revenue
Operating revenue means an amount of money a company receives from its main business activity. Other sources of obtaining income doesn’t count as operating revenue, and operating revenue source differs depending on the type of company. For instance, a retail company generates its operating revenue from selling goods, a service company gets it as payments for the works it provides, for a non-profit organization donations from sponsors generate operating revenue.
Operating revenue is a valuable measure which helps to assess the company’s financial success over time. An important notion concerning operating revenue is that it’s crucial to distinguish it from other types of inflow, as only this indicator fully reflects business results.
Operating revenue also has its impact on a company’s stock prices. It’s used as one of the sources to calculate a ratio called EPS (earnings per share), which influences the value of stocks in the market. If operating revenue grows over time, EPS increases accordingly, and this process serves as an indicator for traders and investors that the company’s stocks are worth buying, thus raising their price.
Operating Revenue importance
While evaluating a company’s income, analysts, accountants and business owners pay their attention to total revenue and operating revenue, among many other things. Operating revenue is a more important figure for understanding the company’s productivity, as it includes only the flow of funds gained from the company’s primary activity, which is the basis of the business in general. In comparison, total revenue might involve non-regular, occasional gaining of large sums of money from atypical operations which aren’t necessary to be repeated in the future, thus not presenting the full picture of the company’s regular activity.
For example, if a shoe retailer company sells one of its warehouses, the obtained sum will be included in total revenue, but not in operating revenue, as it is not received as a result of selling shoes. To see how successful the company’s sales are, it’s reasonable to review only the results of selling shoes (which is reflected in operating revenue), and leave out the sale of a warehouse.
It’s necessary for business owners to distinguish the sources of revenue and understand if this is operating or non-operating revenue, as it helps to control the company’s productivity and ensure further development. In some cases, the decline in the company’s results might be disguised by adding parts of non-operating revenue into operating one, so that’s a point which requires close attention and control.
One more reason why operating revenue is important is that it serves as a basis of funding company’s activities. To move forward, a company needs to possess funds to invest in further development, and operating revenue is a sustainable and reliable source of such funds.
Non-Operating Revenue
To clarify what is operating and non-operating revenue, it’s worth to study more examples. Non-operating revenue may come in different forms, and it’s usually generated by activities not typical for a company’s general business activity. So, donations and gifts would be considered as non-operating revenue for a for-profit business entity, but for a non-profit organization those sources of financing make operating revenue. If a company’s main activity is selling goods or providing services, but the company also invests into securities, the profits from investing are considered as non-operating revenue. Similarly, the profit gained from selling the company’s own assets or properties counts as non-operating revenue, as well as any kind of income received in the process of settling lawsuits.
