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 describes the strict cash equivalent of revenue earned solely through the trading activities of a business.

Exclusion of non-Operating Items

Net operating revenue is important for calculating operating cash flow. That describes cash generated by a company in the course of a year solely by its core trading activities. Figurewizard forecasts automatically calculates these as follows.

Step one adds back charges to profit that do not involve any transfers of cash; e.g. the depreciation of fixed assets or the amortisation of intangible assets such as goodwill, patents or trade marks.

Step two adds back cash expenditure that does 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 and 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 then 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.

Figurewizard Forecasts and Planners

This is 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. These are listed in the menu to the left.

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