Enter the annual cash flow ($) and the total cash invested ($) into the Return on Cash Calculator. The calculator will evaluate and display the Return on Cash.
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Return on Cash Formula
The following formula is used to calculate the Return on Cash.
ROC = ACF / CI * 100
- Where ROC is the Return on Cash (%)
- ACF is the annual cash flow ($)
- CI is the total cash invested ($)
To calculate the return on cash, divide the annual cash flow by the total cash invested, then multiply by 100.
How to Calculate Return on Cash?
The following example problems outline how to calculate Return on Cash.
Example Problem #1:
- First, determine the annual cash flow ($).
- The annual cash flow ($) is given as: 8,000.
- Next, determine the total cash invested ($).
- The total cash invested ($) is provided as: 80,000.
- Finally, calculate the Return on Cash using the equation above:
ROC = ACF / CI * 100
The values given above are inserted into the equation below and the solution is calculated:
ROC = 8,000 / 80,000 * 100 = 10.00 (%)
FAQ
What is the significance of calculating Return on Cash (ROC)?
Calculating Return on Cash helps investors and business owners understand the efficiency of their cash investments. It measures the percentage return earned on the cash invested in a business or investment, providing insight into the profitability and potential growth of the investment.
Can Return on Cash be negative, and what does it indicate?
Yes, Return on Cash can be negative if the annual cash flow is less than the total cash invested. This indicates that the investment is losing money rather than generating a profit, highlighting a potential issue that needs to be addressed.
How can one improve their Return on Cash?
Improving Return on Cash involves either increasing the annual cash flow or reducing the total cash invested without compromising the income. Strategies might include optimizing operational efficiencies, reducing unnecessary expenses, or renegotiating supplier contracts to lower costs.
