What does a negative net income indicate about a company?

A negative net income indicates that a company’s expenses exceed its revenues. This situation occurs when the total costs associated with running the business—such as operating expenses, interest, taxes, and depreciation—outweigh the earnings it generates from sales and other income sources. As a result, the company is operating at a loss during the period in question. This financial state is crucial for stakeholders, including investors and creditors, as it reveals underlying issues with profitability and operational efficiency.

Other options suggest scenarios that do not align with a negative net income. For instance, liquidating assets might indicate financial distress, but it doesn't inherently lead to negative net income unless those asset sales do not cover losses. High investor confidence typically corresponds with positive net income, as investors are more inclined to support companies demonstrating profitability. Finally, while a company may expand its operations, such growth do not automatically result in a negative net income; it is quite possible for a company to pursue growth while maintaining or improving profitability. Thus, only the situation where expenses outstrip revenues accurately corresponds to a negative net income.