Before tax cash flow (BTCF = CFO – Debt Service) divided by the total equity contribution to date, expressed on an annual basis as a percentage.
Cash-on-Cash Return = Before Tax Cash Flow ÷ Total Equity Contribution to Date
Before tax cash flow is often referred to as Cash Flow after Financing, and is equal to Cash Flow from Operations less debt service.
The Cash-on-Cash Return of an investment is important when looking at stabilized cash flow on an annual basis. The Cash-on-Cash Return is typically used alongside other return metrics such as the Equity Multiple, Internal Rate of Return, and Free and Clear Return to appropriately assess an investment. Click here to learn when to use the Cash-on-Cash return.
Click here to get this CRE Glossary in an eBook (PDF) format.