Cash Return on Gross Assets, usually the abbreviation CROGA is used. It is a term that refers to the proportion of operating cash flow after taxes (i.e. the sum of net operating profit and depreciation) and gross assets (assets at purchase price). Instead of accounting profit, the indicator works with operating cash flow and at the same time through the use of gross assets, it is removed inaccuracy resulting from the use of accounting net books values.
CROGA = OATCF / GA
- CROGA - Cash Return On Gross Assets
- OATCF - Operating After Tax Cash Flow (net operating profit + depreciation)
- GA - Gross Assets (sum of fixed assets at current purchase price and working capital)
The resulting value of the CROGA indicator is compared with the desired return on capital, which is represented by WACC. If CROGA > WACC, then the enterprise performance exceeded the owners’ expectations.
The indicator is one of value criteria for enterprise performance measurement.
Waht is CROGA used for in the practice?
Using this indicator is evaluated the performance of enterprise with the owners’ expectations.