Cash Flow Reinvestment Rate shows the possibility of a cash flow to cover the needs of upgrading the fixed and working capital used in the main activity.
Alternative names of Cash Flow Reinvestment Rate:
- Cash Flow Reinvestment Rate
- CRR (Cash Reinvestment Ratio)
What Does Cash Flow Reinvestment Rate Show?
It is believed that the enterprise’s free cash should be enough to finance its current activity, that is, to provide a renewal of fixed and working capital.
The reinvestment rate shows the level of investment in assets necessary to ensure their growth in the future. The indicator represents the monetary funds accrued and reinvested into the company to support its financial stability. This indicator is also used by investors to determine the rate of cash flows reinvestment.
Formula of Cash Flow Reinvestment Rate
CFRR = (Operating cash flow – Dividends) / (Working capital + Fixed and intangible assets) * 100%
CRR = Increase in fixed and working capital / (Operating cash flow – Dividends)
Normative Value of Cash Flow Reinvestment Rate
There is no normative value for this indicator. However, the higher the value, the better for business. So the Cash Flow Reinvestment Rate should demonstrate an increasing trend.