Net Loss

A net loss is the opposite of net income. It means the business spent more than it earned during the period, after accounting for all costs, interest and taxes.

For example, a company with revenue of 4 million and total expenses of 4.6 million reports a net loss of 600,000.

A net loss reduces shareholders' equity through retained earnings. A company that makes losses year after year will see its equity shrink and may eventually face financial difficulty.

A net loss is not always a sign of trouble. Young, fast-growing companies often make losses while investing heavily in products, staff and marketing, expecting profits later. Mature companies may report a loss in a single year because of one-off items, such as a large impairment or restructuring costs, even if the underlying business is healthy.

Tax rules in many countries allow companies to carry net operating losses forward, using them to reduce taxable profit in future profitable years. Analysts look at the causes of a loss, the company's cash position and its path to profitability to judge whether a loss is a concern.