I once spent a short period working in commercial real estate. One of the concepts I took with me when I left was the term, "cash-on-cash," meaning the cash return real estate investors make from their cash investment. Investopedia's dictionary defines a similar term, cash return on capital invested (CROCI), which is essentially EBITDA divided by total equity and long-term debt. Let's take a look at the top five companies in the personal products industry by market capitalization. Who will be the cash-on-cash king?

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And the King of Cash-on-Cash Is ...

Company Market Cap *CROCI
Procter & Gamble (NYSE:PG) $150.3B 24.4%
Colgate-Palmolive (NYSE:CL) $30.9B 67.6%
Kimberly-Clark (NYSE:KMB) $21.5B 39.0%
Avon Products (NYSE:AVP) $10.0B 67.6%
Estée Lauder Co. (NYSE:EL) $6.7B 29.9%
*Cash return on capital invested (CROCI)
Data as of May 11, 2009

It's a Tie!
It's hard to believe two companies in a sample of five could have the exact same return, but that's precisely what we've got with Colgate-Palmolive and Avon Products leading the parade at 67.6%. That's an excellent use of capital. These results certainly fly in the face of April analysis condemning Avon for its misspent stock buybacks. While the company overpaying for its stock seems foolish, you can't argue with numbers like the ones above. Their CROCI is almost three times better than Procter & Gamble, an acknowledged leader in consumer goods. In the end, aggressive stock repurchases are what generated the higher CROCI returns. Avon management could have paid less for its stock, but at least the company achieved tangible results from retiring its shares. (To read the April article, refer to Don't Answer Avon's Call.)

Another Way of Looking at Things
A similar but slightly different ratio that calculates the efficient use of capital is return on invested capital (ROIC). The table below shows the ROIC of the same five companies. The winner in this instance is Avon Products. This result demonstrates just how fickle investment analysis can be. The April analysis determined that Avon is a mediocre company. However, this analysis finds Avon to be a home run. While I tend to avoid companies that have a lot of debt, others believe the leverage advantage debt provides is vital to a company's performance. After seeing these results, I'm more open to the idea of Avon as an investment, which definitely wasn't the case before. Successful investing requires a willingness to be open-minded. Things aren't always as they appear.

Company Market Cap *ROIC
Procter & Gamble (NYSE:PG) $150.3B 7.5%
Colgate-Palmolive (NYSE:CL) $30.9B 5.6%
Kimberly-Clark (NYSE:KMB) $21.5B 7.4%
Avon Products (NYSE:AVP) $10.0B 13.7%
Estee Lauder Co. (NYSE:EL) $6.7B 11.2%
*Return On Invested Capital
Data as of May 11, 2009

Bottom Line

So who is the cash-on-cash king? The straightforward answer is Avon. It tied for first in terms of CROCI and was first alone in ROIC. I owe a big apology to CEO Andrea Jung. Her stock's not so bad after all. (Take a look at our article Analyze Investments Quickly With Ratios to learn more about ratio analysis.)