Glossary·Written by a CPA
Backlog and RPO
Also called: Remaining performance obligations
Revenue a company has already signed contracts for but hasn't earned yet, because the work or service hasn't been delivered.
Backlog is the pile of orders or contracts a company has signed but hasn't delivered on yet. Remaining performance obligations, or RPO, is the official accounting version of that idea, which basically just means the total value of contracted revenue that hasn't been recognized as revenue yet.
Think of a contractor who has signed jobs for the next two years. They haven't done the work, so they can't count it as revenue, but it tells you a lot about how busy they're going to be.
For you, a growing RPO can be a good sign that future revenue is already lined up, especially for software and defense companies. Companies often break out how much of it they expect to recognize in the next 12 months, which is the more useful part.
The catch. Backlog isn't cash or revenue yet, and some contracts can be cancelled, delayed or shrunk, so a huge backlog with a shaky customer is less solid than it looks.
Where I talk about it
- This $2 AI Stock Just Announced $225 Million in Contracts. Read the Footnote. (BBAI Stock) at 2:45
- Amazon & Google Stock: AI Bubble Beginning to Pop or Deal of the Year? at 2:16
- ServiceNow Stock Fell 15% After Beating Earnings. Here's Why (NOW) at 3:26
Cheat sheet
Free to save and share. Tap the image to open it full size.
Related terms
This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.