Operating Loss

Operating loss can be defined as the net loss that is experienced and recorded by the company due to the non profitable operations of the company. Operating loss is calculated by comparing the operating income of the company to its operating expenses. While calculating the operating loss the accountants and the accounting firms do not add interest, interest income or tax expense in the operating expense. However in certain cases the depreciation expense is added to the overall operating expense in order to calculate operating loss. Operating loss indicates the poor financial health of the company. It is also an indicator of financial instability. A company that is suffering from operating loss repeatedly in each and every accounting period must require finance from the outside in order to avoid default and bankruptcy.

A company suffering from operating loss shows a number of signs of running unprofitable operations. This means that the operations of the company are mostly non-profitable and in order to gain profit and financial stability the company must undergo some structural and operational changes. Operating loss is sometimes incurred in the case of the companies that are setting their startup business as they have to spend more in order to setup their operations and business. In other cases if a company is not new the operating loss shows the condition of financial distress and financial instability of the company. Operating loss can also indicates that the company is highly financed and needs to pay loads of debt because the company has lost the money even before fulfilling the tax payments.

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