A method that is used to measure a company performance taking into account depreciation. It is a cash-based ratio that relates expanded cash flow to a company’s assets not net of depreciation:
Cash recovery rate= expanded cash flow/ (assets + accumulated depreciation)
This formula could also be expressed as follows:
Cash recovery rate= (cash flow from operations/ average gross assets) × 100
The expanded cash flow in the numerator includes depreciation. Likewise, the denominator includes accumulated depreciation, which represents the amount of money that has historically been expended to maintain fixed assets (the number on which depreciation is calculated), rather than the current, written down, value of fixed assets.
In general, the cash recovery rate (CRR) is a more stable measure of company performance than return on equity (ROE) because of the wider base for both the numerator and denominator of the ratio and the use of cash flow, instead of earnings, in CRR calculation.
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