Gross Cash Recovery (GCR)

What Is Gross Cash Recovery (GCR)?

Gross cash recovery (GCR) is the gross cash collection expected over the remaining life of an asset. Gross cash recovery is often expressed as a percentage of book value.

Gross cash recovery is most likely to appear in notifications when asset liquidations occur, especially in situations in which a large number of assets need to be liquidated as quickly as possible.

Understanding Gross Cash Recovery (GCR)

Gross cash recovery is most closely associated with closing failed banks. In the case of bank liquidation, government and financial institutions, including other banks, will examine the assets to determine how much they are worth.

On some occasions, the money that other companies and institutions are willing to pay for an asset is below what it is worth on the books. This liquidation difference can be the result of the stigma associated with purchasing an asset from a failed organization, the increased cost of researching assets previously held by the failed bank, and because the liquidators are often willing to accept less money in order to expedite the liquidation.

A well-known example of gross cash recovery involves the Federal Deposit Insurance Corporation (FDIC). The FDIC is responsible for liquidating the assets of failed and assisted banks, and during the 1980s and early 1990s, it was forced to handle several bank failures. The high volume of work resulted in the FDIC not only hiring more staff but also working with private-sector contractors to deal with nonperforming assets.

Contractors were assigned an initial target cash value for a set of assets and were paid fees to recover as much of the book value as possible. The FDIC determined that it was more cost-effective and in the best interest of the financial sector if the assets were liquidated quickly, which resulted in its having to accept less than the book value of the assets. The FDIC ultimately bought back the remaining assets that could not be sold.

Gross Cash Recovery and Book Value

Gross cash recovery is often expressed as a percentage of book value. Book value is the value of an asset according to its balance-sheet account balance. The value is based on the original cost of the asset minus any depreciation, amortization, or impairment.

Traditionally, a company's book value is its total assets minus intangible assets and liabilities. However, in practice, depending on the source of the calculation, book value may include goodwill, intangible assets, or both. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be "tangible book value."