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Net Loss: Definition and Meaning
Definition
A net loss is a negative result that occurs when total expenses and losses exceed total revenue and gains for a period.
Why It Matters
A net loss may result from low margins, reduced sales, start-up costs, unusual expenses, investment in growth, poor project performance, or other operating and financial conditions. Management should understand the causes, whether they are temporary or recurring, and their effect on cash flow and capital.
One period of loss does not necessarily indicate long-term trouble, but recurring losses may affect liquidity, financing, solvency, and going-concern assessments.
Example
A business has $100,000 in revenue and $120,000 in expenses. Its net loss is $20,000.
Related Terms
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