What Is Cash Return On Gross Investment (CROGI)?
Cash Return On Gross Investment (CROGI) is a gauge of a company's financial performance that measures the cash flow a company generates with its invested capital.
CROGI is calculated by dividing gross cash flow after taxes by gross investment. CROGI is important because investors want to determine how effectively a company makes use of the money it invests in itself.
Key Takeaways
- Cash return on gross investment (CROGI) is a measure of how well a company puts its money to use to generate cash flows from investments.
- Because it uses gross figures (instead of net figures), CROGI is a rough calculation that does not account for things like transaction costs, taxes, depreciation, or inflation.
- Cash return on inflation-adjusted gross investment (CROIGI) adds in the effect of inflation to arrive at a more realistic figure, especially on longer-term projects.
Understanding Cash Return On Gross Investment (CROGI)
Cash Return On Gross Investment (CROGI) is one of the numerous measurements that can be used to assess a company's value. It is calculated as:
CROGI = gross cash flows / gross investment
where:
Other measurements include discounted free cash flow, economic value-added, enterprise value, return on capital employed (ROCE), and return on net assets (RONA), to name a few. Each of these measurements is calculated using a subset of the numbers companies report in their financial statements, such as revenues, expenses, debt, and taxes.
A similar measurement, Cash Return on Inflation Adjusted Gross Investment (CROIGI), allows investors to add an inflation adjustment to the gross fixed assets to approximate their value in today's dollars. This gives a fair value to the asset base, regardless of age. For example, CROIGI would allow an investor to determine that a 10-year-old manufacturing plant's return may be lower than a new plant's return once the values of the investments are compared in today's dollars.
CROGI vs. ROGIC
Another similar measure is known as return in gross invested capital (ROGIC). The only difference between the two is that CROGI uses gross cash flows in the numerator while ROGIC uses net operating profit after tax (NOPAT). NOPAT is calculated as (net operating profit before tax + depreciation and amortization) * (1 - income tax rate). They both use gross investment in the denominator.
Similar to ROGIC is return on invested capital (ROIC), butROIC uses net (and not gross) invested capital. Invested capital is equal to a firm's total debt, capital leases, and equity plus non-operating cash expenses.
CROGI and ROGIC are both good measures in identifying firms that can steadily reward investors with investment returns. Note that CROGI and ROGIC calculations are used far less in practice thanreturn on investment(ROI) analyses, since ROI is a metric that uses the net gains or losses generated on investment, relative to the total sum of money initially invested.
FAQs
Cash Return On Gross Investment (CROGI) is a gauge of a company's financial performance that measures the cash flow a company generates with its invested capital. CROGI is calculated by dividing gross cash flow after taxes by gross investment.
What is a good CROCI value? ›
Stockopedia explains CROIC
Invested Capital in turn is calculated as Total Equity + Total Liabilities - Current Liabilities - Excess Cash (using the Greenblatt definition of Excess Cash as cash at hand in excess of 5% of revenues). The higher the CROIC, the better and a CROIC above 10% is usually regarded as good.
What is the cash return on investment CRI? ›
Related to Cash Return on Investment (CRI. Return on Invested Capital for a period shall mean earnings before interest, taxes, depreciation and amortization divided by the difference of total assets less non-interest bearing current liabilities.
How to calculate cash-on-cash return for investment property? ›
It is sometimes referred to as the "cash yield" on an investment. The cash on cash return formula is simple: Annual Net Cash Flow / Invested Equity = Cash on Cash Return.
What is the ROI of cash investment? ›
Return on investment (ROI) is calculated by dividing the profit earned on an investment by the cost of that investment. For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage.
How to work out CROCI? ›
It's called cash return on capital invested or CROCI for short. It is calculated by dividing a company's free cash flow by its capital invested or capital employed and is expressed as a percentage.
What is a good ROCE value? ›
What Is a Good Percentage for Return on Capital Employed? The general rule about ROCE is the higher the ratio, the better. That's because it is a measure of profitability. A ROCE of at least 20% is usually a good sign that the company is in a good financial position.
What is a good CoC return for real estate? ›
“For an investment property where you're not having to factor in the impact of debt financing, a good CoC return would be 10% or more for a self-managed property,” according to Jones.
How do cash returns work? ›
Cash-on-cash returns are calculated using an investment property's pre-tax cash inflows received by the investor and the pre-tax outflows paid by the investor. Essentially, it divides the net cash flow by the total cash invested.
What is a good value for return on investment? ›
General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.
A: It depends on the investor, the local market, and your expectations of future value appreciation. Some real estate investors are happy with a safe and predictable CoC return of 7% – 10%, while others will only consider a property with a cash-on-cash return of at least 15%.
What is a good cap rate? ›
Average cap rates range from 4% to 10%. Generally, the higher the cap rate, the higher the risk. A cap rate above 7% may be perceived as a riskier investment, whereas a cap rate below 5% may be seen as a safer bet. If a property has a 10% cap rate, you should expect to recover your investment in about 10 years.
What is the difference between cash-on-cash return and return on investment? ›
Cash-on-cash return only measures the return on the actual cash invested out of pocket. Cash-on-cash return is a snapshot of annual cash flow, whereas ROI is cumulative and typically measures returns based on including the eventual sale price.
How does cash investment work? ›
A cash investment is, like the name suggests, invested in money. That means it's an easily accessible asset (also known as liquid) that has very little risk of loss. There are different cash options available in addition to cash itself – from saver accounts to term deposits and actively managed cash funds.
What is a good ROI per month? ›
What is a good ROI? While the term good is subjective, many professionals consider a good ROI to be 10.5% or greater for investments in stocks. This number is the standard because it's the average return of the S&P 500 , an index that serves as a benchmark of the overall performance of the U.S. stock market.
What is a good return on investment in real estate? ›
Generally, a good ROI for rental property is considered to be around 8 to 12% or higher. However, many investors aim for even higher returns. It's important to remember that ROI isn't the only factor to consider while evaluating the profitability of a rental property investment.
What is a CROCI valuation? ›
The value-oriented CROCI approach values companies according to a uniform method, making it easy to compare the value of shares in different companies. CROCI stands for Cash Return On Capital Invested and is the “economic” equivalent to return on capital employed. CROCI is the central metric of the DWS approach.
What is a good ROE value? ›
As with return on capital, a ROE is a measure of management's ability to generate income from the equity available to it. ROEs of 15–20% are generally considered good.
What is a good value for working capital? ›
Generally, a working capital ratio of less than one is taken as indicative of potential future liquidity problems, while a ratio of 1.5 to two is interpreted as indicating a company is on the solid financial ground in terms of liquidity.
What is considered a good dividend amount? ›
What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.
