What is Operating Revenue?
1119 reads · Last updated: December 5, 2024
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.
Definition
Operating revenue refers to the income a company generates from its primary business activities. For example, a retailer generates operating revenue through the sale of goods, while a doctor earns operating revenue by providing medical services. The composition of operating revenue varies depending on the business or industry.
Origin
The concept of operating revenue has evolved with the development of commercial activities. The earliest business records date back to ancient civilizations, where merchants recorded their transactions and income. With the establishment of modern accounting systems, operating revenue became a key indicator in financial statements used to assess a company's profitability.
Categories and Features
Operating revenue can be categorized based on industry and type of business. For instance, in manufacturing, operating revenue primarily comes from product sales, while in the service industry, it comes from service provision. Its features include stability and predictability, as it is usually directly related to the core business activities of a company. The advantage of operating revenue is that it reflects a company's core competencies, but its disadvantage is that it may be affected by changes in market demand.
Case Studies
For example, Apple Inc. generates its primary operating revenue from the sales of products like iPhones, iPads, and Macs. Apple maintains high operating revenue through innovation and brand effect. Another example is Amazon, whose operating revenue mainly comes from online retail and cloud computing services. Amazon has significantly increased its operating revenue by expanding its product line and service range.
Common Issues
Common issues investors face when analyzing operating revenue include distinguishing between operating and non-operating revenue and assessing the sustainability of operating revenue. A common misconception is mistaking one-time income for operating revenue, which can lead to incorrect assessments of a company's profitability.
