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Cash return on capital invested definition

Description

Cash return on capital invested (CROCI), also known as cash return on cash invested, is a ratio that compares the money (calculated as EBITDA measure) produced by a company to its’ capital invested. In short, it measures the money, earned with the money invested. Data to calculate this ratio is collected from the income statement and balance sheet.

This ratio is important for investors because in this cash flow based measure they can see clearer the earned money, but not earned income. While making a decision, investors cannot rely on CROCI alone. Other measures must be taken into consideration as well.

Norms and limitations

There are no general norms for this ratio.

It is recommended to compare this ratio with ratios of companies working within the same industry.

Formula

EBITDA is calculated by adding net income plus interest expense plus taxes plus depreciation and amortization.

Equity (Shareholders’ equity) shows the equity stake currently held on company’s balance sheet. In other word it means total assets minus total liabilities.