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.
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.