What is Net Operating Revenue

Net operating revenue is the first step towards calculating a net operating cash flow forecast.

The Role of Net Operating Revenue

Similar to operating profit, net operating revenue is a stricter definition of revenue earned solely through the trading activities of a business.

It begins with the published pre-tax profit which is then adjusted, principally to remove non trading charges such as interest (i.e. cost of finance) and provisions such as for bad debts or depreciation where transfers of cash do not take place.

Net operating revenue is a key component of operating cash flow. What follows describes how Figurewizard would go on to calculate both your operating and net cash flow forecasts.

Calculating Net Operating Revenue

Step one adds back charges to profit that do not involve any transfers of cash. Examples of these are depreciation of fixed assets, the amortisation of intangible assets such as goodwill, patents or trade marks,and provisons or reserves such as for bad debts.

Step two adds back cash expenditure on overheads and expenses that do not arise from core trading activity such as interest payments. That is because interest payments represent financing not trading activity so do not qualify as operating expenditure.

Step three deducts income arising from "exceptional items". This will include income and / or profits from investments, interest earned from cash on deposit, revenue from investments or profits arising from the sale of fixed assets.

What remains is the cash equivalent of net operating revenue that has been generated solely by core trading.

Calculating Net Operating Cash Flow

For the purpose of calculating the operating cash flow forecast Figurewizard adds the changes between assets and liabilities in the forecast balance sheet from the balance sheet of the previous year to arrive at its forecast for net operating revenue.

Forecasting how net operating revenue is to play its part in generating cash flow from within is important for banks, senior creditors and investors, potential or otherwise; measuring as that does how well placed the business is to service its borrowings going forward.

Figurewizard Forecasts and Planners

Operating revenue and cash flow represents just one of the thirteen forecasts and three important calculator-planners that Figurewizard produces simply using your own predictions for sales, margins, overheads, financing and investment.

When using Figurewizard, those predictions can be updated; updating in turn cash flows, liquidity and solvency (including updating taxes) in real time with single clicks of a mouse using our unique Universal What-If Calculator.

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