If net income indicates a cash inflow, what does a net loss indicate?

A net loss indicates a cash outflow as it reflects that the company's expenses have exceeded its revenues during a specific period. While net income signifies that a company has generated profit, representing a positive cash flow, a net loss suggests that the business has not only failed to generate income but has also used cash in the process. This is typically due to operational expenses, interest, taxes, or other expenditures that are greater than the sales revenue.

It's important to note that a net loss does not automatically mean that cash is leaving the business at that very moment; rather, it signifies that over the accounting period assessed, the financial health of the company has deteriorated. This results in an implication that there will be an outflow of cash to cover ongoing costs, debts, or other financial obligations, potentially affecting liquidity and cash reserves.

In comparison, cash neutral would imply that cash inflows and outflows are balanced; cash inflow suggests a positive financial situation; and cash recovery relates to the recuperation of previously incurred losses. Thus, identifying a net loss as a cash outflow accurately represents the financial implications tied to operating in the negative.