CFROI Description
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.
Cash Flow Return on Investment (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 18.000 companies, consisting
of 20 year historical data for US-companies and 10 year historical data
for non-US companies.
Compare with
Cash Flow Return on Investment:
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
|
