Cash-on-cash return

Definition

A year's cash after debt service divided by the cash you put in.

Why It Matters

It is the number a self-funded or SBA buyer actually lives on. IRR and MOIC score the whole hold; cash-on-cash answers what the deal pays you each year on the equity at risk. It also turns on how much you put down, so on the very same business a thin injection posts a high figure and a heavy one starves it.

In numbers: Put $250,000 of equity into a deal that throws off $90,000 of cash after debt payments and a market owner salary, and the cash-on-cash return is 36%. Put $500,000 down on the same business and the smaller loan saves about $38,000 a year at 9% over ten years, so the return falls to about 26%.