What is Operating Revenue?
Operating revenue refers to the revenue generated by a company from its primary activities. The exact activity that generates the operating revenue varies with the type of business. Consider the example of a retailer; the operating revenue for a retailer comes by selling merchandise. In the case of a physician, the operating revenue is generated by providing medical services.
Understanding Operating Revenue
It is important to distinguish operating revenue from total revenue because it provides crucial information about the productivity and profitability of the primary business operation of the company. Some companies may try to mask the decrease in operating revenue by combining it with non-operating revenue. Identifying the revenue sources can take the company a long way by assessing the health of the firm and its operations.
What is Non-Operating Revenue?
Non-operating revenue is the revenue earned by activities other than the primary activities of a company. Such activities are not frequent and can be unusual. For example, interest income, lawsuit proceeds, and gains from the sale of assets can be categorised as non-operating revenue. Non-operating revenue does not count as cash inflows as they re not consistent from one year to the next.
If a company has to fund its operations, it must generate operating revenue. Generating operating revenue will reduce the need for the company to seek financing from outside.
