What is a Net Loss?
A company reports a net loss when its expenses exceed revenues during a specific period of time. A net loss is the opposite of net income or net profit, which is when a organization's revenue is greater than its expenses.
How to Calculate Net Loss (Formula and Example)
A net loss (or a net profit, for that matter) is calculated using the following formula:
Revenues – Expenses = Net Profit or Net Loss
For example, let's say Company XYZ sold 100,000 widgets for $1 each this year, generating an annual revenue of $100,000. To operate the business, Company XYZ needed to pay $120,000 this year to purchase materials to make the widgets and pay its employees.
$100,000 - $120,000 = -$20,000
Because the company paid more in expenses than it earned in revenue for the year, it suffered a net loss of $20,000.
Where is Net Loss on the Income Statement?
The net profit or net loss reported by a company is often known as its 'bottom line' because it's reported at the bottom of the income statement below revenue (the 'top line') and expenses.
Why should analysts and investors pay attention to net losses? The main goal of any business is to make more money than it spends. A company cannot survive if it consistently reports net losses.