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.
Key takeaways
CROCI (cash return on capital invested) is calculated by dividing EBITDA by total capital invested, providing a cash flow-based measure to compare money earned versus money invested in a company.
Capital invested is defined as equity capital raised from selling shares plus long-term loans, calculable by adding equity and loans together or subtracting current liabilities from total assets.
Developed by Deutsche Bank Group, cash flow-based metrics like CROCI are more important to investors than earnings-based ones because cash ultimately matters most to them when evaluating companies.
A higher CROCI indicates a better company outlook and good investment prospect, though investors are cautioned not to base their investment decisions solely on this single measure.
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.