Which of the following best defines 'cash-on-cash return'?

Which of the following best defines 'cash-on-cash return'?

• A. The percentage of invested capital returned as cash
• B. The ratio of total cash distributions to total investments
• C. The total profits from an investment
• D. The return on equity in a specific period

Answer: (A)

The term 'cash-on-cash return' specifically refers to the percentage of cash returned to an investor based on the initial cash investment they made. Essentially, it measures how effectively the invested capital is generating cash income, which is particularly relevant in real estate and other investment contexts where cash flow is a critical indicator of performance. This definition articulates the relationship between cash inflow in a specific period and the cash invested. Investors often use this metric to evaluate the immediate cash returns they can expect, which helps inform future investment decisions and strategies. The other options cover different concepts that don't precisely match the definition of cash-on-cash return. For instance, one alternative focuses on the ratio of total cash distributions to total investments, which is a broader measure and may include non-cash considerations. Another option mentions total profits, which encompasses both cash and non-cash components after expenses are accounted for, thus deviating from the cash-focused nature of cash-on-cash return. Lastly, an option refers to return on equity, which relates specifically to the profitability against equity invested, representing a distinct financial metric.

The term 'cash-on-cash return' specifically refers to the percentage of cash returned to an investor based on the initial cash investment they made. Essentially, it measures how effectively the invested capital is generating cash income, which is particularly relevant in real estate and other investment contexts where cash flow is a critical indicator of performance.

This definition articulates the relationship between cash inflow in a specific period and the cash invested. Investors often use this metric to evaluate the immediate cash returns they can expect, which helps inform future investment decisions and strategies.

The other options cover different concepts that don't precisely match the definition of cash-on-cash return. For instance, one alternative focuses on the ratio of total cash distributions to total investments, which is a broader measure and may include non-cash considerations. Another option mentions total profits, which encompasses both cash and non-cash components after expenses are accounted for, thus deviating from the cash-focused nature of cash-on-cash return. Lastly, an option refers to return on equity, which relates specifically to the profitability against equity invested, representing a distinct financial metric.