Cash Return on Investment

ROIC is an accounting ratio. CRI tells you whether the cheque you wrote is actually coming back.

The formula

CRI = (EBITDA − Maintenance capex) ÷ Investment

For acquirers, investment is the purchase price. For operators, it’s the capital deployed in the business. The numerator strips out growth capex — you’re measuring the cash the business generates from its existing operations, not what it’s spending to expand.

Roper Technologies made this metric famous. They use it to evaluate acquisitions, set hurdle rates, and judge operating performance. Their target: 25%+ CRI on every deal.

What it measures

CRI measures cash-on-cash return. Not accounting profit, not earnings — actual cash generated relative to capital invested.

The maintenance capex adjustment matters. EBITDA includes the benefit of assets that depreciate. A manufacturing business might show strong EBITDA while its equipment wears out. Subtracting maintenance capex — the spend required just to keep the business running at current capacity — gives you the sustainable cash generation.

A 25% CRI means the business generates enough cash to return your investment in four years, with everything after that being profit. A 10% CRI means ten years to payback. The number directly answers: how fast does this investment pay for itself?

How it differs from ROIC

Return on invested capital (ROIC) is the textbook ratio. It divides operating profit by total invested capital. CRI differs in three ways:

Cash, not profit. ROIC uses operating income, which includes non-cash charges like depreciation and amortisation. CRI uses cash flow after maintenance capex. For asset-light businesses the difference is small; for capital-intensive ones it’s significant.

Purchase price, not book value. ROIC typically uses book value of invested capital, which can be distorted by accounting conventions and historical cost. CRI for acquirers uses what you actually paid — the real economic investment.

Maintenance only. CRI excludes growth capex. ROIC doesn’t distinguish between capital spent maintaining the business and capital spent expanding it. CRI isolates the return on the existing business.

The distinction matters most for acquisitions. A target might show 15% ROIC on book value but only 8% CRI on the purchase price you’d actually pay. The accounting ratio flatters; the cash ratio tells the truth.

What it hides

CRI is backward-looking. It tells you what the business generated last year, not what it will generate next year. A business with 30% CRI today might be facing secular decline; one with 15% CRI might be about to inflect upward.

The maintenance capex number is slippery. What counts as maintenance versus growth? A new software system that replaces an old one — is that maintenance or investment? Companies have discretion, and the distinction affects the ratio significantly.

CRI ignores working capital movements. A business might show strong CRI while consuming cash through receivables growth or inventory build. The cash flow statement tells a different story than the CRI calculation.

It also assumes stability. CRI doesn’t account for cyclicality. A business generating 25% CRI at the top of a cycle might generate 10% at the bottom. The single-year number can mislead.

Where it breaks down

Asset-light businesses. Software companies, professional services, and other asset-light models have minimal maintenance capex. CRI converges toward EBITDA ÷ Investment, which is just an EBITDA multiple inverted. The metric adds less insight when there’s nothing to maintain.

Turnaround situations. A business requiring significant near-term investment to stabilise shows terrible CRI. That might be accurate (the business is a cash drain) or misleading (the investment will generate returns later). CRI penalises fixer-uppers.

Platform versus bolt-on. A platform acquisition that enables future bolt-ons might show modest standalone CRI but create strategic value beyond its cash generation. CRI measures the asset in isolation, not its role in a broader strategy.

Negative working capital benefits. Subscription businesses collecting cash upfront can show inflated cash generation that isn’t sustainable at scale. The CRI looks strong but depends on growth continuing.

The decision it enables

CRI sets a hurdle rate for capital deployment. Roper’s 25% threshold isn’t arbitrary — it means they only buy businesses that return their investment in four years through cash generation alone. Any multiple expansion or growth is upside.

For acquirers, CRI disciplines pricing. A target might be strategically attractive, but if the CRI at your offer price falls below threshold, you’re paying too much for the cash flows. Walk away or renegotiate.

For operators, CRI focuses attention on cash conversion. A business unit might show strong profit growth while CRI declines — capital is being tied up faster than earnings are growing. The metric catches value destruction that profit metrics miss.

The metric cuts through accounting noise to the question that matters: is this investment returning cash?

The metric series: Part of a series on metrics that reveal what headline numbers hide.