Backlog
Backlog · Book-to-Bill · Unfilled Orders
The value of orders a company has received but not yet delivered (and therefore not yet recognized as revenue) — an indicator of future demand that the income statement does not show on its own.
What it is
Backlog is the total value of signed but not yet fulfilled orders — typical for companies with a long manufacturing or delivery cycle (aerospace and defense, heavy engineering, large software contracts). Revenue is recognized only upon delivery, but backlog shows how much demand is already "in the pipeline."
Book-to-Bill Ratio measures the rate at which the backlog is growing or shrinking:
Book-to-Bill = New orders (bookings) / Invoiced revenue (billings)
A ratio above 1.0 means more new orders are arriving than can be delivered → backlog is growing. A ratio below 1.0 means the backlog is being depleted faster than new demand is arriving.
Why track it
Backlog and book-to-bill are leading indicators — they signal future revenue before it appears in the income statement. A growing backlog with a book-to-bill above 1.0 is a strong signal of healthy demand, even if it has not yet shown up in current revenue. A declining backlog, on the other hand, warns of a slowdown before revenue itself shows it.
Real-world example
A defense contractor has a backlog of $50 billion against annual revenue of $20 billion — that is 2.5 years of secured demand ahead. A book-to-bill of 1.2× for the last quarter means new orders exceeded deliveries by 20% — the backlog is still growing.
Watch out for
Backlog does not guarantee that orders will actually be fulfilled in full and on time — a customer may cancel or defer an order, especially for long contracts sensitive to budgets (government contracts, large capital projects). Also track the historical cancellation/deferral rate, not just the nominal backlog value.