Operating Revenue

Definition

Operating revenue refers to the income generated by a company's core business activities, such as the sale of goods or services. It is a crucial component of the income statement, which provides a comprehensive overview of a company's financial performance.

5 Must Know Facts For Your Next Test

1. Operating revenue is the primary source of income for a company and is directly related to its core business operations.
2. It is typically the first line item on the income statement, as it represents the company's primary source of earnings.
3. Operating revenue is used to calculate important financial ratios, such as gross profit margin and net profit margin, which provide insights into a company's profitability.
4. Companies may have different types of operating revenue, such as sales revenue, service revenue, or subscription revenue, depending on their business model.
5. Accurately reporting and analyzing operating revenue is crucial for investors and financial analysts to assess a company's financial health and growth potential.

Review Questions

• Explain the importance of operating revenue in the context of the income statement.
  • Operating revenue is a critical component of the income statement, as it represents the core revenue generated by a company's business activities. It is the primary source of income and is used to calculate key financial ratios, such as gross profit margin and net profit margin, which provide insights into the company's profitability and financial performance. Accurately reporting and analyzing operating revenue is essential for investors and financial analysts to assess a company's overall financial health and growth potential.
• Describe the different types of operating revenue that a company may have, and how they relate to the company's business model.
  • Companies may have different types of operating revenue depending on their business model. For example, a manufacturing company may have sales revenue from the sale of its products, while a service-based company may have service revenue from the provision of its services. A subscription-based business, such as a software-as-a-service (SaaS) company, may have subscription revenue as its primary operating revenue. Understanding the specific types of operating revenue a company generates is important in evaluating its financial performance and assessing its growth potential within its respective industry.
• Analyze how operating revenue can be used to assess a company's financial health and growth potential.
  • Operating revenue is a key metric used by investors and financial analysts to assess a company's financial health and growth potential. By analyzing trends in operating revenue over time, such as year-over-year growth or changes in the composition of revenue sources, one can gain insights into the company's overall performance and the sustainability of its business model. Additionally, comparing a company's operating revenue to industry benchmarks or competitors can provide valuable context for evaluating its competitive position and growth opportunities. Ultimately, a thorough understanding of a company's operating revenue is essential for making informed investment decisions and assessing its long-term viability.

Related terms

Revenue: The total amount of money received by a company from its business activities, including the sale of goods and services.

Gross Revenue: The total amount of money received by a company before any deductions or adjustments, such as discounts, returns, or allowances.

Net Revenue: The amount of revenue remaining after deducting any discounts, returns, or allowances from the gross revenue.