What is CROCI?
It stands for cash return on capital invested, and is a way of comparing the money earned by a company with the money invested. CROCI is calculated by dividing the earnings before interest, taxes, depreciation and amortisation (EBITDA) by the total capital invested.
Where have you heard about CROCI?
Developed by Deutsche Bank Group, CROCI provides investors with a cash flow-based measure for evaluating the earnings of a company. Cash flow-based metrics are more important to investors than earnings-based ones because, ultimately, it’s the cash that matters most to them.
What you need to know about CROCI.
The capital invested is defined as the equity capital raised from selling shares, along with long-term loans. It can be calculated from the balance sheet by adding the equity and loans together. Another way to calculate capital invested is by subtracting the current liabilities from the total assets.
The higher the result, the better the outlook for a company. A business with a high CROCI is seen as a good investment prospect, although you shouldn’t base your decision solely on this measure.
Find out more about CROCI.
Read our definitions of debt-to-capital ratio and EV/EBITDA.