An operating loss occurs when a company's operating expenses exceed gross profits (or revenues in the case of a service-oriented company). A company's operating profit is its profit before interest and taxes. Interest and taxes are not considered operating expenses in the way that cost of goods sold, selling, general and administrative expenses are. Often companies generate enough revenue to cover the operating expenses and make an operating profit.

An operating loss does not consider the effects of interest income, interest expense, extraordinary gains or losses, or income or losses from equity investments or taxes. These items are "below the line," meaning they are added or subtracted after the operating loss (or income, if positive) to arrive at net income.