Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Red

What it is:

Red is slang for loss. Losses are the negative amount remaining after all costs, depreciation, interest, taxes, and other expenses have been deducted from total sales. The formula for profit is:

Total Sales - Total Expenses = Profit

When expenses exceed sales, a company is “in the red.”

How it works (Example):

Here is some information about Company XYZ for last year:

Using the formula and the information above, we can calculate that Company XYZ's profit was:

$1,000,000 - $500,000 - $400,000 - $200,000 - $5,000 + $1,000 = -$104,000

This means that Company XYZ lost $104,000 last year. It was “in the red.”

Why it Matters:

Philosophically speaking, being in the red is bad. Being in “the black,” which means a company is profitable, is what motivates industry, entrepreneurship and innovation. It is the very thing that enables people to feed themselves, clothe their families, create jobs and set money aside for the future.

Profit is one of the most analyzed numbers a company can produce, and it plays a part in many other financial measures. It is also important to understand that changes in accounting methods can greatly influence whether a company is in the red, and these changes may have little to do with a company's actual operations.

In the retail industry, companies are often in the red until the fourth quarter, when Christmas shopping begins. This is the source of the termBlack Friday.”
 

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...