Backlog
Backlog refers to the total value of orders or contracts that a company has received from customers but has not yet fulfilled, recognized as revenue, or delivered. In fundamental analysis, a large and growing backlog signals future revenue visibility, while a shrinking backlog may indicate weakening demand or competitive pressure.
Backlog is most prominently reported by companies in the aerospace and defense, construction, engineering, and enterprise software industries — sectors where customers commit to purchases well in advance of delivery or implementation. Companies such as Boeing, Lockheed Martin, Raytheon Technologies, and Caterpillar regularly disclose backlog figures as a key indicator of the revenue pipeline stretching one, three, or more years into the future.
For Boeing, the commercial aircraft backlog — which has at times exceeded $400 billion in value — represents firm orders from airlines that have committed to purchasing specific aircraft at agreed prices, providing multi-year revenue visibility. Analysts use the backlog-to-revenue ratio to estimate how many years of production the current order book funds, which is a central input into long-term revenue forecasts and valuation models for capital equipment manufacturers.
In the enterprise software sector, companies such as Salesforce and Workday disclose remaining performance obligations, a GAAP concept closely analogous to backlog, representing contracted revenue not yet recognized. This metric has become increasingly important as analysts evaluate the durability of software companies' recurring revenue streams beyond the current year.
Backlog quality matters alongside backlog size. Analysts examine the mix between firm orders and softer letters of intent, the credit quality of the customers in the backlog, cancellation rates on existing orders, and the margin profile of new bookings relative to older, potentially lower-margin contracts in the existing pipeline. A large backlog filled with low-margin or potentially cancellable contracts provides less revenue visibility than the headline number implies.