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Cash Flow Return on Investment

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CFROI

Summary of Cash Flow Return on Investment. Abstract

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CFROI Summary

 

Cash Flow Return on Investment (CFROI), originally developed by HOLT Value Associates (since Jan 2002 CFSB Holt, based in Chicago), is an Economic Profit (Cash-Flow) based corporate performance/valuation framework on Economic profit basis, mainly used by portfolio managers and corporations .

 

CFROI is normally calculated on an annual basis and is compared to an inflation-adjusted cost of capital  to determine whether a corporation has earned returns superior to its costs of capital. Cash Flow Return on Investment can help compare across companies with disparate asset compositions, across borders and time.


An advantage of CFROI is that it ties performance measurement to the factor that capital markets prize most: the ability of a corporation to generate cashflow.

Also CFROI is inflation-adjusted.


CFROI can be calculated at divisional (Strategic Business Unit) level and can also be used for private held companies.


The calculation of CFROI (formula) is rather complex and too big to fit here. See the book: Bartley J. Madden - CFROI Valuation - (review)

Is is an approximation of the average real internal rate of return earned by a firm on all its operating assets. The inflation-adjusted CFROI metric is calculated from a recurring stream of after-tax cash flows generated by a company's growing base of deprecating and nondepreciating assets. Over time, CFROI fades, or regresses, to the long-term corporate average. By applying the ROI to the total assets, a net cash receipt forecast can be calculated. This forecast is discounted back to the present to arrive at a current value for a company.


CFSB Holt maintains a CFROI database of over thousands of companies, consisting of decennia of historical data for both US-companies and non-US companies.


Compare with CFROI: Market Value Added  |  Economic Value Added  |  Cash Flow from Operations  |  Economic Margin  |  Dividend Payout Ratio  |  EBIT  |  EBITDA  |  Cash Ratio  |  Current Ratio  |  Return on Equity  |  Fair Value  |  TSR  |  Relative Value of Growth

More valuation methodologies

   
 

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2016 Value Based Management.net - Last updated: Jan 6th, 2016 - All names by their owners

 

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