What does a higher cash-on-cash return indicate about an investment?

A higher cash-on-cash return indicates that an investment is generating a significant amount of cash income relative to the amount of cash invested. This metric is particularly useful for real estate and income-generating assets, as it reflects the efficiency of the investment in generating cash flow. A higher return suggests that the investment is effective in producing a good return for every dollar invested, thus making it more profitable for the investor.

In this context, the cash-on-cash return serves as a straightforward measure of profitability, allowing investors to gauge the financial performance of their investment compared to other opportunities. It helps assess whether an investment is yielding adequate returns, particularly against its initial cost or ongoing capital contributions.

While higher returns might also correlate with certain levels of risk or volatility, that is not the primary interpretation of cash-on-cash return itself. It does not directly imply that an investor should withdraw capital, nor does it indicate the condition of the property in question. In summary, the definition and significance of cash-on-cash return underscore how a higher return points directly to greater profitability, making option A the most fitting choice.