What is a Loss?

A loss refers to reduction in the value of an investment, or in business terms, to having expenses outweigh revenues.

In a company’s fiscal year, if their operating and total expenses outweigh their revenues, they are operating at a loss. If those companies are not supported by private capital and operate at a loss for too long, it can easily lead to bankruptcy or closure. Newer businesses often run at a net loss for the first few years, while they rush to build labor and capital infrastructure, with costs such as equipment, buildings, technology, employees, and rights.

With investing, a loss is incurred when an investor sells an asset for less than they purchased it for. There is quite a big difference between a realized loss and a paper loss, the latter of which is not technically a loss until the investor decides to sell. In some tax situations, losses can be used to offset gains, so in some cases investors may intentionally “harvest losses” for tax purposes.

What Happens When a Company Goes Bankrupt?
What are the Tax Implications for Making a Profit (or Loss) On a Stock?