Cash Return On Gross Investment (CROGI)
What Is Cash Return On Gross Investment (CROGI)?
Cash Return On Gross Investment (CROGI) is a check of a company's financial performance that measures the cash flow a company generates with its invested capital.
CROGI is calculated by partitioning gross cash flow after taxes by gross investment. CROGI is important in light of the fact that investors need to decide how effectively a company utilizes the money it puts resources into itself.
Understanding Cash Return On Gross Investment (CROGI)
Cash Return On Gross Investment (CROGI) is one of the various measurements that can be utilized to evaluate a company's value. It is calculated as:
CROGI = gross cash flows/gross investment
where:
- Gross cash flows are cash flows before taxes
- Gross investment = net working capital + fixed assets + accumulated depreciation and amortization
Different measurements incorporate discounted free cash flow, economic value-added, enterprise value, return on capital employed (ROCE), and return on net assets (RONA), to give some examples. Every one of these measurements is calculated utilizing a subset of the numbers companies report in their financial statements, like incomes, expenses, debt, and taxes.
A comparative measurement, Cash Return on Inflation Adjusted Gross Investment (CROIGI), permits investors to add an inflation adjustment to the gross fixed assets to estimated their value in the present dollars. This gives a fair value to the asset base, paying little mind to age. For instance, CROIGI would permit an investor to establish that a 10-year-old manufacturing plant's return might be lower than another plant's return once the values of the investments are compared in the present dollars.
CROGI versus ROGIC
One more comparable measure is known as return in gross invested capital (ROGIC). The main difference between the two is that CROGI involves gross cash flows in the numerator while ROGIC utilizes net operating profit after tax (NOPAT). NOPAT is calculated as (net operating profit before tax + depreciation and amortization) * (1 - income tax rate). The two of them utilize gross investment in the denominator.
Like ROGIC is return on invested capital (ROIC), however ROIC utilizes net (and not gross) invested capital. Invested capital is equivalent to a company's total debt, capital leases, and equity plus non-operating cash expenses.
CROGI and ROGIC are both great measures in recognizing firms that can consistently reward investors with investment returns. Note that CROGI and ROGIC calculations are utilized undeniably less in practice than return on investment (ROI) examinations, since ROI is a metric that utilizes the net gains or losses generated on investment, relative to the total sum of money initially invested.
Features
- Since it utilizes gross figures (rather than net figures), CROGI is a harsh calculation that doesn't account for things like transaction costs, taxes, depreciation, or inflation.
- Cash return on inflation-adjusted gross investment (CROIGI) includes the effect of inflation to show up at a more reasonable figure, particularly on longer-term projects.
- Cash return on gross investment (CROGI) is a measure of how well a company puts its money to use to generate cash flows from investments.
