What is a Negative Return
A negative return occurs when a company or business has a financial loss or lackluster returns on an investment during a specific period of time. In other words, the business loses more money than it brings in and experiences a net loss. 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. Spending a lot of money/capital when not bringing in any revenue will lead to a loss. New businesses generally do not begin making a profit until after a few years of being established.
A negative return can also be referred to as negative return on equity.
Negative return can also be used to refer to the performance of a stock or bond. If the price of a stock drops below the price at which you purchased it as opposed to going up, that is known as a negative return.
BREAKING DOWN Negative Return
A new business that has invested $500,000 in equipment, tools, repairs or any other operating 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. If an investor buys stock ABC at 4.50/share and holds the stock while it dips to 4.25/share, and if the stock did not pay a dividend, then the investor has experienced a negative return on the stock.