Backlog
Sector Deep DivesThe value of orders received but not yet delivered, a leading indicator of future revenue.
Also written: order book
Backlog is work already won and still to be recognised as revenue. For a capital goods manufacturer, an engineering contractor or a defence business, it is the most informative single figure in the results.
It leads the income statement by quarters or years, so it tells you about the future while revenue tells you about the past. A shrinking backlog is a warning long before revenue turns down.
Quality matters as much as quantity. Whether orders are firm or merely framework agreements, how cancellable they are, the margin embedded in them, and how far out they extend all change what the number is worth.
It is usually read together with book to bill, the ratio of new orders to revenue in the period, which shows whether the backlog is currently growing or being consumed.
Worked example
Backlog of 2,400 against annual revenue of 1,000 is 2.4 years of coverage, so most of next year's revenue is already contracted.
A competitor with 800 of backlog on the same revenue has under a year of visibility and must win work continuously to stand still.
Quality matters as much as size: whether the orders are firm or framework, how cancellable they are, and what margin is embedded all change what the figure is worth.