What return does your cash contribution produce?
Cash on Cash divides annual before-estimated-tax cash flow by the entered cash contribution. It is not the return on every dollar the buyer may need at closing or after purchase.
Business acquisition
Calculation
This measure uses the entered cash contribution, not every dollar required at closing.
| Input | Value |
|---|---|
| Annual before-estimated-tax cash flow | $42,000 |
| Entered cash contribution | $400,000 |
| Known additional acquisition cash | $85,000 (shown separately) |
- Formula
- $42,000 / $400,000 x 100
- Result
- Cash on Cash is 10.5%.
- What it means
- The result measures annual before-estimated-tax cash flow against the entered contribution used in financing.
Common mistakes
Cash on Cash uses the $400,000 entered contribution. The additional $85,000 and any other purchase costs increase the total cash the buyer needs.