What is Operating Revenue?
How Does Operating Revenue Work?
Let's assume that Company XYZ sells $1,000,000 of widgets -- its main business -- this year. It also sold $40,000 of very old, outdated inventory that was stashed under a desk for six years, and it performed a one-time service for some clients that brought in $500,000.
In this example, Company XYZ's operating revenue is simply the $1,000,000. The other $540,000 of revenue is not related to the company's day-to-day operations -- it is not associated with the company's core operations, nor is it expected to be anything more than a one-time event.
Why Does Operating Revenue Matter?
Operating revenue is the lifeblood of any company. Companies whose revenues include high amounts of nonoperating revenue are often less stable because they are dependent on "Hail Mary passes" rather than steady, recurring customers. In turn, high amounts of operating revenue usually translate to more stable cash positions.
Note, however, that determining what exactly counts as operating revenue can be as much an art as science. Analysts must be careful to scrutinize rental and leasing activity, discounts, and sources of expenses when making this determination. After making the appropriate adjustments, the analyst can then calculate a more accurate operating profit.
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