DECA Sports and Entertainment Marketing Practice Exam

What occurs when a company generates less revenue than it incurs in expenses?

1. Profit

2. Loss

3. Break-even

4. Debt

The correct answer is: Loss

When a company generates less revenue than it incurs in expenses, it experiences a loss. This situation occurs when the costs of doing business—such as operating costs, salaries, rent, and materials—exceed the income generated from sales. A loss is an indication of poor financial performance, suggesting that the company needs to either increase its revenue, reduce its expenses, or both in order to achieve financial stability. In contrast, profit occurs when revenue exceeds expenses, meaning the company is effectively generating income. Break-even refers to the point at which total revenues equal total expenses, resulting in neither profit nor loss. Debt involves borrowing money and is not a direct outcome of whether a company is operating at a profit or a loss; rather, it reflects the financial obligations a business has to external entities. Understanding these terms is crucial for evaluating a company’s financial health.