Cash-On-Cash Yield

AAA

DEFINITION of 'Cash-On-Cash Yield'

A basic calculation to estimate the return from an asset that generates income. Cash-on-cash yield also refers to the total amount of distributions paid annually by an income trust as a percentage of its current price. The cash-on-cash yield is a measurement technique that can be used to compare different unit trusts.

INVESTOPEDIA EXPLAINS 'Cash-On-Cash Yield'

The cash-on-cash yield is useful as an initial estimate of the return from an investment, but has a number of limitations. It may overstate yield if part of the distribution consists of a "return of capital," rather than a "return on capital," as is often the case with income trusts. Also, as a pre-tax measure of return, it does not take taxes into consideration. For example, if an apartment priced at $200,000 generates monthly rental income of $1,000, the cash-on-cash yield on an annualized basis would be 6%.

In the context of income trusts, assume a trust with a current market price of $20 pays out $2 in annual distributions, consisting of $1.50 in income and 50 cents in return of capital. The cash-on-cash yield in this case is 10%, but since part of the distribution consists of return of capital, the true yield is 7.5%. The cash-on-cash yield measure overstates the return in this case.

RELATED TERMS
  1. Pretax Rate Of Return

    The rate of return on an investment that does not take the taxes ...
  2. Yield

    The income return on an investment. This refers to the interest ...
  3. Return Of Capital

    A return from an investment that is not considered income. The ...
  4. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
  5. Income Trust

    An investment trust that holds income-producing assets and trades ...
  6. Canadian Income Trust

    A type of corporate structure as designated by the Canada Revenue ...
Related Articles
  1. Junk bonds differ because of their issuers' credit quality.
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  2. Taxes

    The Basics Of REIT Taxation

    The unique tax advantages offered by these investments can translate into superior yields.
  3. Options & Futures

    Find Quality Investments With ROIC

    Return on invested capital is a great way to measure the true value produced by a company. Learn to use the ROIC metric and increase your chances of finding successful investments.
  4. Forex Education

    How To Compare Yields On Different Bonds

    Find out how to equalize and compare fixed-income investments with different yield conventions.
  5. Taxes

    Weighing The Tax Benefits Of Municipal Securities

    Find out how to determine whether the tax exemption offered by "munis" benefits you.
  6. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  7. Options & Futures

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  8. Technical Indicators

    How are Morning Star patterns interpreted by analysts and traders?

    Understand the elements of the morning star candlestick pattern and how this reversal signal is interpreted by traders and analysts.
  9. Technical Indicators

    What are the best indicators to identify overbought and oversold stocks?

    Learn about the interpretation of the relative strength index and stochastics, two of the most popular indicators of overbought or oversold conditions.
  10. Economics

    Profiting From China's Breakout: The Right Funds

    China's prospects for growth, and for rewarding investments, can't be debated. Here are some worthwhile funds to invest in, and the smart way of doing it.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center