Cash-On-Cash Yield


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.

BREAKING DOWN '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.

  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
  2. Pretax Rate Of Return

    The rate of return on an investment that does not take the taxes ...
  3. Income Trust

    An investment trust that holds income-producing assets and trades ...
  4. Return Of Capital

    A return from an investment that is not considered income. The ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Canadian Income Trust

    A type of corporate structure as designated by the Canada Revenue ...
Related Articles
  1. 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. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  9. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  10. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  1. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  2. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  3. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  4. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  5. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  6. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center