Negative Return


DEFINITION of 'Negative Return'

This occurs when a company or business has a financial loss or lackluster returns on an investment during a specific period of time. Some businesses report a negative return during their early years because of the amount of capital that initially goes into the business to get it off the ground. New businesses generally do not begin making a profit until after a few years of being established.

Also referred to as negative return on equity.

BREAKING DOWN 'Negative Return'

A new business that has invested $500,000 into equipment, tools, repairs or any other operational expenses and is losing $50,000 annually will have negative return on capital of 10%. If the company is able to realize a return on equity in the near future, then the impact of this initial negative return can be overcome.

Investors in the company will be willing to stick around if they know that the company has the potential to quickly turn its negative return into a positive return and bring in high profits, sales or asset turnover.

Stocks and other investments can also have a negative return.

  1. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders ...
  2. Negative Growth

    A contraction in a country's economy, as evidenced by a decrease ...
  3. Return On Assets - ROA

    An indicator of how profitable a company is relative to its total ...
  4. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  5. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
Related Articles
  1. Options & Futures

    Basic Investment Objectives

    You might know about different asset types, but do you know how each type contributes to a particular goal?
  2. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  3. Investing Basics

    Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  4. Investing Basics

    Looking Deeper Into Capital Allocation

    Discover how companies decide how to spend their cash in a variety of market conditions.
  5. Investing Basics

    Introduction To Investment Diversification

    Reducing risk and increasing returns in your portfolio is all about finding the right balance.
  6. Budgeting

    Use ROA To Gauge A Company's Profits

    Do you rely too heavily on ROE? Consider using return on assets for a more complete picture.
  7. Options & Futures

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  8. Professionals

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  9. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  10. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  1. Does working capital include inventory?

    A company's working capital includes inventory, and increases in inventory make working capital increase. Working capital ... Read Full Answer >>
  2. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  3. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  4. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  5. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  6. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!