When running a business, it’s essential to understand operating revenue and how it can affect your company. I didn’t fully understand the concept of operating revenue when I started my business, so I made some decisions that ended up costing me money. So what is operating revenue of a company, and why does it matter? This blog post will tell you everything you need to know about operating revenue.
What is Operating Revenue of a Company?
What is operating revenue of a company? Operating revenue is the revenue generated by a company’s core business activities. This includes sales of goods and services and any other income from activities essential to the company’s operations.
Operating revenue is the top line on a company’s income statement and is a crucial metric for investors to assess a company’s financial performance.
The amount of money a business makes from its primary operations is called its operating income. The business uses this money to run itself and stay in operation.
The operating revenues of your company are a crucial indicator of its health. It shows how your business is being managed and whether it needs better management.
How Operating Revenue Works
There is no set way or hard rule to earning it. Specific activities that your business performs regularly are called “operating” or “operational” activities.
These core activities are what companies use to generate revenue. Operating activities and operating revenues go hand in hand. That is, money goes out for operating activities while the money returns.
To earn money, you must clearly and concisely understand the actions required to earn that income. This amount is the profit a company can make by trading its goods or services.
Let’s take, for example, a company that provides properties for sale and hire. What are the most significant Operating activities for the above business?
The rental and sale of properties are the company’s two primary sources of operating revenue.
- Renting properties generates revenue.
- Commission revenue from the selling and buying of properties;
- Revenue from the sale of properties
If you are a property business, the above businesses would be considered operating because they would be continuously working on the sale/purchase of properties as well as renting them out.
Let’s say Mr. Mohit has a grocery store and wants to trade in them. Calculate his Operating Revenues.
The following would be the Operating Revenues for Mr. Mohit’s trading business:
- Trade-in groceries generate revenue
- Retirement from a commission on groceries sold
What is the Operating Revenue for an electronics services business (or similar)?
The operating income would be as follows for a business that services electronic devices.
- Revenue from Service Charges
- Revenue from the sale of parts of the Electronic Items used in Service
Operating and non-operating revenue
- Operating Revenues are the steady income of any business, while Non-Operating Income is not.
- The Operating Income is earned by the company’s core operations, while the Non‐Operational income is from non‐core business activities.
- It is useful in making important business decisions. Non-operating revenues are helpful in investing decisions.
- It assists stakeholders in making decisions about the continuity of the business. Non-Operating Incomes, on the other hand, are additional revenues that do not affect such decisions.
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- Some examples of operating income are revenue from sales of goods, revenue generated from professional services, revenues from service charges, revenues received from service charges, and rental income from letting out property.
Non-Operating Revenues are revenues that are not directly related to the core business. They can include interest income from things like CDs or savings.
Importance Of Operating Revenue
- The operating revenues of a company are its primary source of income. It is the main source of revenue for most companies. The core business is where most of the company’s assets are used. Companies must inform their Registrar of any changes to their primary business activities.
- Operating revenue measures how much profit a company earns from its operations. It is calculated as total revenue minus total expenses and is represented as a percentage. The more significant the assets are, the more operating costs a business has to shoulder. Therefore, the more important it is to have high operating profits as the major assets used to fund the business operations.
- The operating revenue of a business is key to its investors, as they’ll decide whether or not the company’s business model is viable.
- The operating revenue, or recurring profits, measures the company’s growth and performance. It is computed as the difference between the operating profit and the total expenses. It is an important metric that shows how profitable the company is. A positive number means the company has enough capital to invest in new opportunities. A negative value indicates that there are problems with the core business.
So, what is operating revenue of a company? This is the money that a company earns from its primary business operations. It is important for business owners to know because it represents how much the company earns from its core activities.
If your operating expenses are higher than your revenues, then you’re not making any profit and will need to find other funding sources to stay afloat. Make sure you have a good handle on your operating revenue to make intelligent decisions for your business.