What does cash-on-cash multiple measure?

The cash-on-cash multiple measures the amount received compared to the initial investment, which makes it a key metric in evaluating the performance of an investment. This ratio provides investors with insight into how effectively their capital is being utilized and the returns generated over a specific period.

When investors look at the cash-on-cash multiple, they are essentially assessing the total cash they have received from the investment compared to the amount they initially invested. This allows them to understand the real cash return they are getting relative to their own cash outlay. It reflects the direct cash benefits received, which can be particularly important for real estate investors or those in private equity where cash flows are a critical component of the investment's success.

Given this metric's focus on cash returns without considering how time or the net present value affects returns, it contrasts with other financial measures such as average annual return or discounted cash flows, which incorporate both time and the cost of capital. Thus, while those measures provide valuable information, they serve different purposes in financial analysis and aren't focused solely on return relative to the initial investment amount.