Backlog

The value of committed, unfulfilled customer orders that a company has received but not yet delivered.

Backlog represents the accumulation of customer orders that have been formally booked but not yet filled or recognized as revenue. It is a common metric in industries with long production cycles, such as defense, aerospace, construction, and specialized manufacturing, where products take months or years to build and deliver. To calculate backlog, a company starts with its beginning backlog, adds the value of new orders received during the period, and subtracts the revenue recognized from completed deliveries. This calculation is typically disclosed in the management discussion and analysis (MD&A) section of quarterly and annual financial reports. For investors, backlog is a vital leading indicator of future revenue and business health. A growing backlog suggests strong demand and provides high revenue visibility for upcoming quarters. However, if a backlog grows too large due to supply chain bottlenecks or operational inefficiencies, it can lead to customer dissatisfaction and cancelled orders, meaning not all backlog is guaranteed to convert into revenue.

Company A starts the year with a backlog of $100 million. During the year, it signs new customer contracts worth $50 million. Over the same period, it successfully delivers products and recognizes $60 million in revenue. Its ending backlog is calculated as: $100 million (Beginning) + $50 million (New Orders) - $60 million (Revenue Recognized) = $90 million.