Operating Revenue

Operating Revenue

Operating revenue is the revenue that a company generates from its primary business activities. In this example, the university's income statement lists operating revenue and profit from operations first, then it posts non-operating revenue and profit, such as revenue received from gifts and legacy donations. Despite the fact that operating revenue is recorded separately on financial statements, some firms may attempt to mask decreases in operating revenue by combining it with non-operating revenue. For example, a private university may classify tuition received as operating revenue, whereas gifts from alumni are considered non-operating revenue (because they are not expected nor are they part of ordinary university operations). 0:59 Distinguishing operating revenue from total revenue is important because it provides valuable information about the productivity and profitability of a company's primary business operations.

Operating revenue is generated by a company's primary business activities.

What Is Operating Revenue?

Operating revenue is the revenue that a company generates from its primary business activities. 

For example, a retailer produces its operating revenue through merchandise sales; a physician derives their operating revenue from the medical services that they provide. What constitutes operating revenue varies based on the business or the industry. 

Operating revenue is generated by a company's primary business activities.
Operating revenue can be compared year-over-year to assess the health of a company and its operations.
Operating revenue should be separated out from non-operating revenue that occurs from infrequent, unusual, or one-time events.

Understanding Operating Revenue

Distinguishing operating revenue from total revenue is important because it provides valuable information about the productivity and profitability of a company's primary business operations. 

Despite the fact that operating revenue is recorded separately on financial statements, some firms may attempt to mask decreases in operating revenue by combining it with non-operating revenue. Understanding and identifying the sources of revenue is helpful in assessing the health of a firm and its operations. 

Operating Revenue vs. Non-Operating Revenue

Non-operating revenue is revenue generated by activities outside of a company's primary operations. This type of revenue tends to be infrequent and oftentimes unusual. Examples of non-operating income include interest income, gains from the sale of assets, lawsuit proceeds, and revenues from other sources not connected to operations. 

For example, a private university may classify tuition received as operating revenue, whereas gifts from alumni are considered non-operating revenue (because they are not expected nor are they part of ordinary university operations).

In this example, the university's income statement lists operating revenue and profit from operations first, then it posts non-operating revenue and profit, such as revenue received from gifts and legacy donations. This presentation of information informs those reviewing the company's financial records that the gift is not an ordinary part of the university's business. It is important to distinguish the difference because non-operating revenue can change drastically from year to year.

Special Considerations

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 regularly without the need to seek additional financing, and these companies can operate with a lower cash balance.

For example, a company may sell a fixed asset, such as a building, in the current year. If the building is sold at a gain, the gain will be treated as non-operating revenue in the year it was sold. This revenue is not expected as a normal course of doing business, and the one-time revenue should not be used to assess the success of the company's primary operations year over year.

Stock Prices

For a successful company, operating revenue and income are the primary sources 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 that generate higher earnings. As EPS increases, many investors and analysts consider the stock to be more valuable and the stock price increases.

Related terms:

Accounting

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more

Cash Flow

Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. read more

Common Stock

Common stock is a security that represents ownership in a corporation.  read more

Earnings Before Interest and Taxes (EBIT) & Formula

Earnings before interest and taxes is an indicator of a company's profitability and is calculated as revenue minus expenses, excluding taxes and interest. read more

Earnings Per Share (EPS)

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. read more

Financial Performance

Financial performance measures how well a firm uses assets from operations and generates revenues. Read how to analyze financial performance before investing. read more

Fixed Asset

A fixed asset is a long-term tangible asset that a firm owns and uses to produce income and is not expected to be used or sold within a year. read more

Income Statement : Uses & Examples

An income statement is one of the three major financial statements that reports a company's financial performance over a specific accounting period. read more

Net Operating Income (NOI)

The net operating income (NOI) formula calculates a company's income after operating expenses are deducted, but before deducting interest and taxes. read more

Non-Operating Income

Non-operating income is the portion of an organization's income that is derived from activities not related to its core operations. read more