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Is there value to computing the cash-on-cash return regularly or only prior to purchase? If regularly...

Is there value to computing the cash-on-cash return regularly or only prior to purchase? If regularly would you suggest annually?

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Answer #1

It will be important to compute the cash on cash return ratio on regular basis annually. The formula of Cash- on-Cash Return is Annual Pre-tax Cash flow divided by Actual Cash Invested. The regular awareness of the ratio is important because it is the cash which drives all the activities including new investment and incurring expenses. The non-cash items are almost the sunk expenses, so immaterial to considered them. It is the comparative one on one to know is cash invested is making cash for the business or not. Thus, it is necessary to judge the cash flow of the business every year through cash-on-cash return or ratio.

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