Explain Cash Reinvestment Ratio and how we can compute it?

The cash reinvestment ratio is a measure of the percentage of investment in assets representing operating cash retained and reinvested in the company for both replacing assets and growth in operations. This ratio computed as: (operating cash flow - Dividends) / (Gross plant + Investment + Other assets + Working capital).

The Cash Reinvestment Ratio is used to estimate the cash flow reinvested in a business by the owners or managers. To compute it, you need to add the (increase in capital + increase in fixed assets) and divide that by (net income + noncash expenses – noncash sales - Dividends).