Order backlog

Backlog is the total value of confirmed customer orders a company has received but hasn't yet delivered, shipped, or billed. It represents future revenue that's already been contracted for, work the company knows it needs to complete, just not yet recognized on the income statement.

Backlog matters most for companies with long production or delivery cycles, industrial manufacturers, aerospace and defense contractors, engineering and construction firms, and enterprise software companies with multiyear contracts. A growing backlog signals healthy demand and gives investors visibility into revenue several quarters or even years out, since much of that backlog is already committed rather than merely hoped for. A shrinking backlog can be an early warning that new orders aren't keeping pace with what the company is delivering, even if current revenue still looks fine.

Companies typically disclose backlog in their earnings reports or filings, sometimes breaking it out by segment or by expected timing of conversion into revenue. Investors watch the trend in backlog alongside new bookings and the book-to-bill ratio to judge whether demand is accelerating or decelerating before that shift shows up in reported revenue.

Backlog isn't a guarantee. Orders can be delayed, modified, or in some cases canceled, and a large backlog built years ago can mask weakening current demand if new orders have slowed. It's most useful read as a leading indicator alongside the rate at which new orders are coming in, not as a substitute for current revenue and cash flow.