Cash Return On Capital Invested - CROCI

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Definition: Cash Return On Capital Invested - CROCI

It is the method of valuating company by comparing the company’s cash with its equity. This technique was developed by Deutsche Bank. It gives an estimate of the cash returned with regard to cash invested.


The formula used for the calculation is


 

CROCI determines how much money needs to be invested in the company to generate a certain level of cash profits


It takes into consideration both common and preferred share equity as sources of capital.


If the total value of the equity is 100 million that is 100 million is being invested in the company. Profit generated is 200 million. Then the CROCI are 2. This means twice the amount invested will be approximately the profit of the company.

 

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